Severability of agreement

Posted by: jsalzman

Severability of agreement - 10/16/17 07:34 PM

I'm trying to figure out if a particular paragraph (or portion of it) in my divorce decree is severable.

This is in the state of Pennsylvania.

I'll excerpt the portion of the decree in question. Explain the circumstance, and then show the severability clause.

[i]"Within thirty (30) days of the execution of this Agreement, Husband shall withdraw from his 401K plan the sum of Seventeen Thousand Dollars ($17,000) and immediately upon withdrawal pay to Wife the sum of Eight Thousand Five Hundred Dollars ($8,500). Husband shall be solely liable for all costs, penalties, and tax witholdings which result from the withdrawal and Husband shall utilize the balance of the payment as full satisfaction of any obligation Wife may have to Husband for Husband's personal debt incurred during the marriage, including but not limited to those obligations set forth in this Marital Property Settlement Agreement."
Her lawyer drafted this. She thought I could just take cash out on my own. I wasn't sure if I could or not, but she wanted to fast track the divorce. As it turns out, federal and state law doesn't allow me to withdraw the funds directly out of my account at my age. She would need to have QDRO drafted and entered into court. Even then, she can only go for $13,500 of available funds, convert it to a 401K in her name, then withdraw the cash on her own because she wants the money now. That makes her liable for the taxes and penalties.

I'm guessing because I cannot do what's defined in the agreement, because the law prevents it, I can have this portion severed under the following severability clause:

[i]"This Agreement shall be construed in accordance with the laws of the Commonwealth of Pennsylvania. In the event that any provision or clause of this Agreement conflicts with applicable law, such conflict shall not affect the other provisions of this Agreement which can be given effect without the conflicting provision. To this end, the Agreement is declared to be severable."
Thank you for any advice you may have on this.

Posted by: TJMH

Re: Severability of agreement - 10/16/17 08:29 PM

So if I have this straight, $8,500 represents her portion of the 401k and she's requiring you to use the remainder (after YOU have paid ALL of the tax and penalty for early withdrawal) to pay of marital debt.

I think you need to check the laws. As far as I know you can cash out your 401k at any time and at any age, you just have to pay state and federal income tax on the distribution and a penalty (I think 10%).

So if you already signed that agreement, I think you're screwed--there's no law preventing you from performing in accordance with the clause so severability isn't relevant.

If she's open to negotiation, maybe suggest that you fulfill the intent of the clause by taking a loan against the 401k (if your plan allows that) rather than a withdrawal. You'd have to pay back the loan, but it would allow you to get cash out without penalty or tax. Result would be the same for her and probably at least a little bit better for you.

Lesson learned, read and understand agreements before you sign them, especially if they were drafted by the opposition.
Posted by: jsalzman

Re: Severability of agreement - 10/17/17 02:08 AM

Thanks for the info. When attempting to withdraw the money, the plan administrator would not allow me to do a direct withdraw until age 59 1/2. I already have a loan outstanding on the account that I used for house repairs, so no more loans are allowable. The remaining solution is for a QDRO to transfer the funds to a 401K in her name. I'm not cashing it out because it's active and my employer puts money in each payday as a benefit.

That is why I believe the clause conflicts with what is allowed by law, thus able to be severed.

The reason why I'm asking is more for leverage than for outright denying the money. It's taking more than 30 days to get the process completed and she is threatening to take me to court over it. I'm not really trying to deny her the money as it was agreed upon in good faith that it could be done as written. I want her to realize that "sh-- happens" so to speak, and that I *could* have the distribution dismissed completely through severability. That all she needs to deal with the same wait I'm dealing with trying to get it done.

Originally, I was expected to get $17,000 out. The penalties and taxes would deduct from there, she gets $8500, then she gives me the rest. That's supposed to take care of her share of debt she ran up in my name. Now, only $13,500 is technically available and we're arguing over a new split amount.
Posted by: TJMH

Re: Severability of agreement - 10/17/17 02:38 PM

It sounds like it's your plan rules that won't allow you to take a withdrawal. That's not law, so I'm not sure whether that would make the clause severable or not. It might be worth asking the plan people, if you had a court order (QDRO) would that allow you to withdraw the $17K?

Unless you can get her to negotiate it may be that you will need to go back to court and request a modification to the original order.
Posted by: jsalzman

Re: Severability of agreement - 10/19/17 05:45 PM


Right now, I'm wondering what could happen to me, legally, as a result of the plan restrictions not letting me fulfil the withdraw amount requested. She's threatening to file a complaint because she thinks I'm intentionally delaying the action of getting anything out of the 401K, when I'm simply running into unexpected hurdles that prevent be from acting on this as defined in the agreement.