How can you divide your 401k in your divorce?

| Sep 5, 2019 | Family Law And Divorce

As you prepare for the commencement of your divorce proceedings in Sioux Falls, you are likely already taking a mental inventory of the many marital assets that will need to be addressed during the property division portion of your case. Yet if you are like most, then there is a good chance you forgot to include one significant asset: your 401k account. As the contributions made to such an account during your marriage most likely were taken from your income (and any income that you earn while married is a marital asset), the said contributions are also subject to equitable division

So exactly how are you to divide up your 401k with your ex-spouse? Typically, the court hearing your case will issue a Qualified Domestic Relations Order. This order authorizes the company administering a retirement account to make payments to an alternate payee (which, in this case, would be your ex-spouse). They can then roll whatever portion of your contributions they receive into their own retirement account without either you or them being assessed an early withdrawal penalty. With a QDRO in place, your ex-spouse can also technically cash out their portion right now without incurring a penalty, but then they lose out on the potential the funds have of generating income if they are left untouched until retirement. 

Your retirement plans likely depend heavily on the money you have already contributed to your 401k, so the prospect of losing any portion of them may not seem appealing. The 401k Help Center offers a potential solution. If you are willing to give up your claim to a marital asset of equal value, you can ask your ex-spouse to give up their portion of your 401k contributions.