Dividing a 401(k) and Other Assets in Divorce

Learn the basics about property division in divorce.

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If you're contemplating a divorce, you may have questions about the division of retirement benefits, including a 401(k). This article provides a basic overview, but only an experienced family law attorney can assess your individual situation.

Divorce and the Division of Assets

The division of divorcing couples' assets is handled differently in every divorce case and depends on both the law of the state where the divorce case is pending and, of course, the specific facts of each case. But, here are some things all divorcing spouses should consider when facing divorce:

  • If you live in a “community property” state, all assets and debts acquired during the marriage are considered "community property," which means both spouses own the property jointly, and the property will be divided equally (50/50) between the spouses at divorce. This can include contributions to retirement accounts such as 401(k) accounts.
  • If you live in a state that uses the "equitable distribution" method of dividing property (which is what the majority of states follow) your state’s courts will divide property between couples (including a 401(k) account) in a way the judge hearing the case believes is equitable or fair, but not necessarily equally. Equitable distribution states have different rules on how property is categorized, either as as marital (joint) or separate.  
  • Spouses have the right to make agreements about issues in their divorce case. This means you can work directly with your spouse to decide who will receive assets, such as a 401(k). If you come to an agreement, you (or your attorneys) should write it down in a document called a "marital settlement agreement" or "divorce settlement" so there is no dispute later about who agreed to what. 
  • During the divorce negotiation process, there are often trade offs being made. For example, you may ask to keep your entire 401(k) in exchange for some other asset. 
  • Tax implications for retirement assets are different depending on various factors, including the plan type. Sometimes, tax is deferred until the participant receives or withdraws the retirement funds. Thus, you should consult a CPA or tax attorney about the best way to deal with the specific retirement accounts in your divorce.
  • If you contribute to pension plans during marriage and prior to or after your marriage, you will have to calculate the amounts that were contributed at each time to figure out how much is part of the marital estate (the dates that go into the exact calculation will depend, in part, on the laws of your state regarding dates of separation and pre-marital contributions).
  • Some spouses opt for a lump-sum (one-time) payout on retirement benefits. Talk to your attorney about whether this is a good idea in your case.
  • Even if you and your spouse come to an agreement about the division of a 401(k), you will need a court order to make the division happen. The special court order required to divide a 401(k) is called a Qualified Domestic Relations Order. This will require the help of an attorney that has experience preparing these types of order. 
  • If you and your spouse can't come to an agreement, and you use the legal system to handle your divorce, the distribution of assets will be decided by the court. There are other methods for divorce such as mediation or other forms of collaborative proceedings. Choosing mediation or collaborative divorce allows you to take some of the control back. These alternatives are great for couples that are willing to negotiate and come to an agreement. But, as stated above, when a couple can’t agree, a judge will have to decide.
  • Courts will make decisions on asset division based on various factors, again depending on the laws of the state where the divorce is taking place. Factors may include the amount of money each spouse earns and the roles played and contributions made during marriage.  

Getting Legal Help

If have questions about the division of property in your case, you will need to contact an experienced family law attorney to find out your rights. An attorney can simplify the divorce process and help you understand how your assets may be divided.

Updated by: , Attorney

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