Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature
by Joseph W. Cunningham, JD, CPA
Consider the following example:
- Parties – A and B – were married on 7/1/96 and divorced 20 years later on 6/30/16
- B has been a participant in her employer’s 401(k) plan since before marriage. At marriage, the account balance was $30,000.
- B had no plan loan balance at time of marriage, but she drew a $50,000 loan from the plan during marriage to provide funds for a family vacation home in northern Michigan.
- At divorce, the 401(k) account consisted of $100,000 in investments and a remaining loan balance of $20,000.
- Since the loan funds were used for marital purposes, the unpaid plan loan is a marital debt.
- Based on these facts, A and B will divide the $70,000 net increase in the account during marriage. A’s $35,000 will be paid from non-loan plan assets.
- B will also receive $35,000 of non-loan assets as well as the $20,000 plan loan receivable for which she is responsible to repay (essentially, to herself).
- The following presents the division of the account value, including the plan loan receivable.
Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)