Dealing with a 401(k) during property division
  1. Home
  2.  ▶ 
  3. Divorce
  4.  ▶ Dealing with a 401(k) during property division

Dealing with a 401(k) during property division

Most of those heading into divorce proceedings in California understand that marital property division proceedings can be quite complex. Understanding the details that determine what is (and what is not) shared property can be difficult. Yet a general assumption exists that any asset purchased or secured during a marriage qualifies as such (with everything else considered separate). 

This assumption overlooks retirement assets. Indeed, in regards to an asset like a 401(k) account, family courts view contributions made to such a fund during a marriage as shared assets. The question then becomes how does the court divide such an asset during property division proceedings. 

Dividing up a 401(k) account

The most common way to deal with a 401(k) during a divorce is for the court to issue a Qualified Domestic Relations Order. A QDRO authorizes a 401(k) plan sponsor to make disbursements to payees other than the account holder. With this order in place, the plan sponsor can split an existing 401(k) account into two, with both spouses then gaining control over their respective funds. 

Many will allow those funds to continue to grow until they reach retirement age, yet according to the website SmartAsset.com, cashing out a 401(k) is an option. Typically this will net an early withdrawal penalty, yet divorce is one of the few cases where one can take a disbursement without penalty. 

Keeping the full 401(k)

For a 401(k) account holder concerned about the impact dividing up their 401(k) will have on their retirement plans, the 401(k) Help Center points out that keeping their full 401(k) is also an option. To do so, they will need to convince their ex-spouse to relinquish their stake in those funds (by conversely foregoing their interest in another marital asset of comparable value). 

Archives

Share This