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Dealing with a 401k in a divorce

| Jun 6, 2018 | Property Division |

A 401k is likely not the first asset that comes to mind when divorcing couples in St. Charles start to discuss property division. Yet by the conclusion of divorce proceedings, how such an account is divided can easily be one of the most contentious issues. Indeed, according to a survey of the American Academy of Matrimonial Lawyers, those polled claimed that 62 percent of their clients fought over the equitable distribution of retirement accounts. 

It is easy to understand why; 401ks, IRAs and other forms of retirement savings may often rank among the most valuable assets that people have. Any contributions made to a 401k during a marriage are indeed considered to be marital assets (the same is true for any profits generated or interest earned during that same time frame). Per the 401k Help Center, after a party negotiating to keep the full value of his or her 401k, dividing up the marital portion evenly is among to more common methods couples use when dealing with this asset. To do this, a couple must obtain a Qualified Domestic Relations Order. While separate from a divorce decree, a QDRO is almost always issued in conjunction with it. This document allows assets from a retirement account to paid to an alternate payer (in this case, the non-contributing spouse). 

Those receiving 401k funds from a spouse’s account want to be sure that the QDRO specifies a percentage of funds rather than a fixed number (naming a fixed number excludes any contributions, profits or interest earned from the time the QDRO was drafted to the time of dispersal from being subject to division). Once the funds are withdrawn, most recommend that the receiving spouse roll them in his or her own 401k or a separate individual retirement account.