Tax on 401k early distribution to pay off loan

[dawnd74]

I was ordered to take a 401k loan in a 2016 divorce decree of $20k - $10k to go to my Ex & $10k me to pay off credit cards from marriage. I lost my job 06/2019, I did a rollover of funds to another IRA but had to payoff the loan of $22,000 by distribution of funds so this shows as income.  My Ex never pd a dime of the $10k he received from the 401k loan that he was ordered to pay to me each month. Is there a tax exception due to this as I would not have had to pay this loan off if not for divorce agreement. 

Thanks!

[AnnetteB6]

No, there is not an exception to the income tax or the early distribution for the situation that you described.  

Because the distribution was taken as a loan which then became a deemed distribution and not a direct distribution as a result of the qualified domestic relations order, there is not a way to take exception to the taxes owed on the deemed distribution.

[Opus 17]

No, your taxes are what they are.  You might get relief from the family court.

What you should have done in 2016, if you were ordered to pay $10,000 out of your retirement plan to your ex, is to get a qualified domestic relations order (QDRO).  The money comes out of your plan with no tax or penalty to you. Your ex has the option of taking a lump sum and paying income tax, or putting it into their own retirement plan.  

I don't know the whole situation of course, and you still might have had to borrow some money to pay off the marital credit cards.  And maybe there was some other reason your ex got a loan instead a QDRO.  You may have been poorly advised by your attorney.  Sorry about that.