Many of the people in Lakeland working their way through divorce proceedings may feel prepared to tackle the property division portion of the process (believing that defining marital and separate is relatively straightforward). Most find themselves surprised to learn, however, that a 401(k) account (or more specifically, the contributions made to such an account during their marriages) are subject to property division.
This knowledge often prompts either one of two questions (depending on one’s position related to the account). The contributing spouses typically want to know if there is a away they can retain its full amount, while non-contributing spouses question how they are to receive their portion of the funds.
Keeping the full 401(k)
According to information shared by the 401(k) Help Center, an account holder can seek to retain the full value of their fund in a divorce if they can convince their ex-spouse to voluntarily forego their interest in it. Such an agreement would likely be contingent on them relinquishing their stake to another marital asset of comparable value. One important point that those pursuing this course of action will want to remember is that in such a scenario, the court values the non-contributing spouse’s portion at of the assets at their potential future value.
Dividing a 401(k) through a QDRO
When dividing up 401(k) funds, the court issues a Qualified Domestic Relations Order authorizing the plan provider to make a disbursement to the non-contributing spouse. Typically the non-contributing spouse rolls that disbursement over into their own account. However (if they so choose), the website SmartAsset.com points out that a divorce is one of the few scenarios where one can cash out a 401(k) disbursement without incurring an early withdrawal penalty.