What is the CARES Act? How the CARES Act and Divorce Intersect Financially
The CARES Act and divorce may not seem directly connected, but the law’s financial relief provisions can significantly affect how couples divide assets and plan post-divorce finances. The Coronavirus Aid, Relief, and Economic Security (CARES) Act is an economic stimulus bill. Its purpose was to provide financial assistance to individuals and families, healthcare systems, and small businesses and industries. On March 20, 2020, the President signed this bill into law which provided up to 2 trillion dollars in much needed relief and financial assistance to individuals and businesses suffering the social and economic impact of the COVID-19 pandemic.
Tax Implications of the CARES Act During Divorce
- Early withdrawal from your retirement account.
Usually, people under the age of 59 ½ are subject to a 10% withdrawal penalty on any distribution from their retirement account. Now, the CARES Act may permit you and your spouse to withdraw up to $200,000 ($100,000 per individual) from your 401(k), 403(b), or 457(b). One spouse may withdraw up to $100,000 from the retirement account. In addition, one spouse can also rollover another $100,000 to the other spouse’s IRA, which they can withdraw from their retirement account.
NOTE: It is important to consult with an attorney and/or CPA. If the rollover is not done correctly, penalties and taxes may follow. Since original contributions are pre-tax, you will still owe taxes on any withdrawal. Generally the taxes are due in the same year that the withdrawal is made. But under the CARES Act, the taxes may be spread over a period of three years.
- Borrowing from your retirement account.
Alternatively, individuals may take loans from applicable retirement accounts if certain criteria are met. Prior to the CARES Act, you could borrow up to 50% of your account balance, or $50,000, whichever is less. Under the CARES Act, you may borrow up to 100% of your balance, or $100,000, whichever is less.
Attorneys can be helpful in this process as well, because it is important to keep withdrawal agreements in writing. Important details, such as the amount, timeline, who is paying the loan, consequences of nonpayment, and other factors, should be considered before making this type of decision.
Potential Impact on Divorce
The benefits offered under the CARES Act may be significant in structuring your post-divorce finances. The act allows a vehicle for receiving funds needed for a divorce proceeding or for the effects of a divorce (like buying a new house, taking on new bills, etc.).
However, there may be a downside. Since the act allows a spouse to remove funds from their retirement accounts, this asset would then be reduced. Once again, before using CARES Act funds during divorce, consult your attorney or CPA as to the impacts of the CARES Act on your specific divorce or dissolution situation.
Click here if you want to read the IRS guidance about this provision.
If you have questions about how the CARES Act and divorce may affect your specific circumstances, contact the experienced divorce attorneys at MuesLaw.
PUBLISHER’S NOTE:
I want to thank Rachel Recker for helping draft this blog article. She has been clerking with MuesLaw since the start of the summer. She graduated in May from the University Of Dayton School Of Law and besides clerking with us she just learned yesterday that she passed the Ohio bar examination. CONGRATULATIONS Rachel – well done! We are glad you are working with us!
MuesLaw Provides Experienced, Trusted and Professional Advice if You Are Considering Ending Your Marriage.
MuesLaw can assist you with your divorce or dissolution related issues. To learn more, please go to our website at mueslaw.com or call us at (937) 293-2141. We can schedule an in-person conference or one by phone or Zoom. We look forward to assisting you!
Please consider joining or following us!
© 2025, Ohio Family Law Blog. All rights reserved.
Attorney Robert “Chip” Mues has been focusing his legal practice throughout Southwest Ohio primarily in divorce and family law matters since 1978. Chip is passionate about family law and has proudly published the Ohio Family Law Blog since 2007. In addition, he previously managed the Dayton law firm of Holzfaster, Cecil, McKnight & Mues LPA until it dissolved on December 31, 2024. He founded MUESLAW in 2025. To learn more about him or MUESLAW, visit www.MuesLaw.com. Appointments are available in person, over the phone or by Zoom. Call us at 937 293-2141. He can be contacted by email at chip@mueslaw.com.
