You’ve worked hard at your career, and have managed to save money using your 401k and other retirement vehicles. However, you are going through a divorce, and you are now faced with the prospect of losing some of this retirement savings. Will there be a divorce 401k division, and what other retirement considerations are involved in your divorce proceedings? There are a number of things that can happen to your retirement investments and accounts as a result of divorce, but all of these eventualities must follow certain procedures. In order to make sure that your 401k is as protected as possible, you will want to be sure that you know what can happen.
Understanding 401K Division
If it is determined by the divorce court that your former spouse or any of your existing dependents are entitled to a portion of your 401k or other retirement savings under the terms of the divorce agreement, the court will issue what is called a qualified domestic relations order, or QDRO. The QDRO will allow for a portion of your retirement savings to be removed from the account, without being subject to the usual tax penalties for early withdrawal. This money will then be distributed to your former spouse or qualified dependents.
To be considered legal and valid, a QDRO must meet two legal checks:
- It must be created legally and
- It must be verified legally.
If you are faced with a court ordered QDRO, you can send the documents to your 401k plan administrator and ask to have them verified or checked for accuracy. Some examples of incorrect information which can cause a court ordered QDRO to be thrown out are:
- The failure to list your former spouse as the alternate payee,
- Failure to include proper address or other contact information for the alternate payee, and
- Failure to follow the proper procedures for notifying both you and your former spouse about the validity and changes to the 401k information as ordered by the QDRO.
Getting Help
Perhaps the best way to avoid the court’s division of your retirement assets through a qualified domestic relations order is to consider having your lawyer draft a marital settlement agreement which specifically exempts your retirement contributions and 401k items from the divorce proceedings. If your spouse is amenable you can usually make a marital settlement agreement which will avoid particular situations regarding money which is yours, or which you brought into the marriage. Contact a lawyer if you have specific questions regarding what to do with your 401k and other retirement savings during a divorce.
