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Author Topic: Can I ask for a lien to be put on my 401K for arrearages?  (Read 3222 times)

416021va

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Can I ask for a lien to be put on my 401K for arrearages?
« on: May 25, 2006, 06:50:37 AM »
I am a few thousand in child support arrearages.

I would like to know the following:

1) Could I could call the Department of Revenue and have them put a lien on my 401k to satisfy arrears because at least paying into a 401k only to have a lien placed on it would help lower my tax liability this year.

2) Additionally, it is my understanding that there is no pentalty placed on such a lien if the state takes my money. Is this an accurate statement?

3)  Finally, my company contributes to the 401k. However, I will not be fully vested for 3 years. Could the Department of Revenue put a lien on the vested portion of the money as well or would I get in trouble and be forced to pay that money back to my company since their contribution is not 3 years vested yet?

4) Would the lien be "dynamic" in the sense that everytime I put money into the 401k it could be garnished for the purpose of child support arrearage?

Thanks




socrateaser

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RE: Can I ask for a lien to be put on my 401K for arrearages?
« Reply #1 on: May 25, 2006, 08:52:47 AM »
>1) Could I could call the Department of Revenue and have them
>put a lien on my 401k to satisfy arrears because at least
>paying into a 401k only to have a lien placed on it would help
>lower my tax liability this year.

You can ask, but they probably won't agree. You owe the arrears now, not at some uncertain future date, and the state gets federal matching dollars for collecting now, not for getting an equitable lien against the proceeds of the retirement account.

>2) Additionally, it is my understanding that there is no
>pentalty placed on such a lien if the state takes my money. Is
>this an accurate statement?

You will owe statutory interest on the unpaid portion of the judgment of arrears, regardless, of whether there is a lien on the retirement account.

>
>3)  Finally, my company contributes to the 401k. However, I
>will not be fully vested for 3 years. Could the Department of
>Revenue put a lien on the vested portion of the money as well
>or would I get in trouble and be forced to pay that money back
>to my company since their contribution is not 3 years vested
>yet?

DOR can obtain an equitable lien from a court, or you can agree to an order that grants the arrears plus interest to the state at the time the account vests.

Your company cannot be forced to disgorge any part of the 401K until you are vested, because if you quit or are terminated prior to vesting, your interest in the 401K may be less than the vested amount (or no amount at all).

This is what is known as an unvested future interest. It has no value until it vests, so while you can stipulate to a lien, that lien is illusory, because it provides no safety to the support obligee until your interest vests. It's up to DOR, whether they want to do this now, in anticipation of the money later, or whether they want you to pay something now and ongoing.

>4) Would the lien be "dynamic" in the sense that everytime I
>put money into the 401k it could be garnished for the purpose
>of child support arrearage?

The account is unvested -- DOR can't touch it until it vests, because it doesn't belong to you, yet. And, there is no real tax benefit, because if you pay out of the account prior to your reaching 59 1/2 years old, after vesting, you will pay your income taxes plus the IRS 10% penalty.

So, I suggest that you just pay now and get it all behind you as fast as possible.

 

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