Dividing up a 401(K) in a Divorce

Property division proceedings can be one of the most contentious aspects of a divorce case in Florida (and one touched upon by this blog several times). Yet for all of the complexities that come with this process, most go into it believing that they know what to expect.

Many then find themselves surprised to learn that their retirement assets (specifically their 401(k) accounts) are subject to division. Even though such assets typically come about due to one’s individual employment efforts, the contributions made to them during a marriage come from marital income (thus prompting the court to classify them as marital assets).

Splitting up a 401(k)

In most divorce cases, the court issues a Qualified Domestic Relations Order that authorizes a 401(k) plan provider to divide up an account into two (with each respective party then assuming investment control over their own account). Both sides may choose, however, to cash out the portion of 401(k) funds due to them. This typically nets an early withdrawal penalty, yet according to CNBC.com, divorce is one of the few cases where one may withdraw retirement assets early without facing any penalties (they still, however, have to pay income tax on the disbursement).

Keeping the entire 401(k)

401(k) account holders may fear that splitting up their funds in their divorce may dramatically impact their retirement plans. Therefore, they may look to try and retain their entire accounts in their divorce. According to the 401(k) Help Center, this may be possible. To do so, they need to convince their ex-spouses to forego their interest in their 401(k) contributions. Agreeing to give up their own stake in another marital asset of comparable value in exchange may facilitate this request.

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