Over 30 Years Of Experience in Family Law And Criminal Defense

  1. Home
  2.  → 
  3. Firm News
  4.  → 401k division during a divorce

401k division during a divorce

On Behalf of | Apr 17, 2020 | Firm News, Property Division |

As one prepares for their divorce proceedings in Athens, they should thoroughly research the process in order to understand all of their options. Many are ill-prepared for certain issues, such as the division of their 401k.

Most believe a 401k account to be a personal asset, yet the contributions made to it during a marriage are marital property. Knowing this, the next question becomes how should is it divided in a divorce?

Dividing up the 401k

In most cases, the court hearing a divorce case will issue a Qualified Domestic Relations Order which allows a 401k plan provider to make disbursements to a payee other than the plan holder. More often than not, the non-contributing spouse will roll the funds due to them over into a new retirement account (if they already have an existing account, they can move the money owed to them to that account, as well). Traditional wisdom would say that cashing the funds out is not an option if the non-contributing spouse has not reached the age of retirement, yet according to the website SmartAsset.com, divorce is one of the rare scenarios where one can make an early withdrawal from a retirement account without incurring a penalty.

Keeping the full 401k

401k account holders who want to retain their full value can do so. The 401k Help Center correctly states that in order to make this happen, they would have to relinquish their claim to another asset of comparable value in exchange. Many think (at first) that “comparable value” is the current value of the funds owed to their ex-spouse. In reality, however, that value is the future potential value of those funds. That might mean that one must give up their claim to a significant asset now in exchange for benefiting from their full 401k in the future.