401k loan default


#1

in april of 2010, my wife and i both signed to take a loan of $25,000 from my employers 401k.

in august of 2011, we became physically separated as i moved into my own dwelling. we have been continuoulsy physically separated since.

as of december 31, 2012, the loan went into default with an unpaid balance of $19,308.

since the $25,000 loan was used to pay off credit cards (that april of 2010) in both of our names (joint debt), if my ex decides to file her 2012 taxes, “married filing separately” does she not have to report any of the unpaid loan or “gross distribution” of $19,308. or would she technically have to report half of it?

right now we are not divorced even though it has been approximately 18 months. we do have a child support and custody agreement, that says we will file separately beginning in year 2014 for tax year 2013, but is silent on tax year 2012.


#2

Neither party should have to claim the unpaid loan funds until the loan is forgiven. That debt is not considered income until that point.

If the loan has been forgiven, you should speak with a CPA about how to handle the income. If you have to clam it all, you can use that as a factor for distribution purposes in equitable distribution.