Dividing your 401k in a divorce

No matter how prepared you may feel going into your divorce proceedings in Lafayette, trust us here at the Southern Oaks Law Firm when we say that there are bound to be surprises awaiting. Such has been the experience of several clients that we have worked with in the past; indeed, one aspect that many did not plan on having to deal with was the division of their 401k’s.

You might believe your 401k account to be your own separate property (as its existence is due primarily to your own employment efforts). Yet because the contributions made to your account during your marriage come from marital income, they are considered to be marital assets.

Dividing up your 401k 

The question then becomes how will those contributions be divided? According to information shared bythe 401k Help Center, in a divorce case, the court will typically issue what is known as a Qualified Domestic Relations Order. This order authorizes your 401k plan provider to make disbursements to an alternate payee (your ex-spouse). It also stipulates how that disbursement is to be made. The most common methods of handling your 401k in a divorce include:

  • Dividing it into two accounts (with your ex-spouse’s portion rolling into the new account)
  • Rolling your ex-spouse’s portion into their own retirement account
  • Your ex-spouse cashing out the portion due to them

You may believe the final option listed to be impossible without incurring an early withdrawal penalty, yet divorce is one of the rare instances early withdrawals do not result in penalties.

Retaining your full 401k 

You can also try to retain the full value of your 401k. You would simply need to give up your claim to a marital asset of comparable value. More information on dealing with property division in a divorce case can be found throughout our site.