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How is a 401(k) dealt with during divorce proceedings?

On Behalf of | Aug 15, 2020 | Divorce

As you enter into your divorce proceedings in Milford, you may feel completely prepared for the issues and challenges you anticipate arising during this process. Yet like many in your same position, the fact that your 401(k) is subject to property division may come as a complete surprise.

Yet as you contemplate this inevitability, it really should not. After all, the contributions made to your 401(k) account during your marriage most likely came from marital income. Thus, it is reasonable that the court would view those contributions as a shared asset. The question now becomes what will happen to the account itself.

Dividing up your 401(k)

According to the 401(k) Help Center, typically family courts will deal with a 401(k) by issuing a Qualified Domestic Relations Order. What this does is authorize your plan provider to make a disbursement to an alternate payee. In this particular case, that payee is your ex-spouse. The funds subject to division are then dispersed and rolled into two separate accounts: one containing your portion, and the other your ex-spouse’s. Handling those shared contributions in this manner allows you both to determine the invest strategy for those funds going forward. Either of you might also choose to cash out the portion owed to you (which is possible without incurring an early withdrawal penalty during divorce proceedings.

Keeping the full amount of your account

If you fear the impact that losing a portion of your 401(k) may have on your retirement plans, you can push to keep your full account. To do this, you likely will have to give your interest in another marital asset in exchange for your ex-spouse relinquishing their claim to your 401(k). Whether or not this strategy makes the most sense for you depends on how much you must sacrifice to make it happen.


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