This question comes up more than you may expect. Scenario: divorce attorney is wrapping up a divorce and the client has insufficient funds or an unwillingness to pay the entire legal bill. The alternate payee’s attorney comes up with the idea of getting paid from the client’s share of the 401(k). We get a call asking, “Can we do this?” Without passing on the merits of such an arrangement, there is a way to do this.
The attorney will not qualify as an alternate payee and the plan will not pay the attorney money under a QDRO. However, the alternate payee may take an immediate distribution under most defined contribution plans (which would be realized for income tax purposes but not subject to the 10% penalty) and pay all or a portion of the distribution to the attorney. To facilitate this arrangement, sometimes the alternate payee will use the attorney’s address as his or her mailing address.
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