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Dealing with your 401(k) in your divorce

On Behalf of | Sep 28, 2020 | Family Law

As you look ahead to your retirement in Allentown, your spouse no doubt figures heavily into what your plans may be. It goes without saying, then, that your decision to divorce will no doubt have a dramatic impact on those. Yet that impact may go far beyond simply changing the person with you whom you foresaw spending your golden years.

Many in your come position come to us here at Worth, Magee & Fisher, P.C. not knowing that their 401(k) accounts (or more specifically, the contributions made to those accounts during their marriages) are subject to property division. You may not know of this, as well, which is why it is important you understand what your options are when confronted with this scenario.

Dividing up your 401(k) with your ex-spouse

Typically the court issues a Qualified Domestic Relations Order in your case. Through this order, your 401(k) plan provider gains authorization to make disbursements to alternate payees (in other words, another person not directly contributing to your account). This allows for the division of your account, with the portion of contributions due to your ex-spouse rolling over into a separate fund over which they maintain direct control.

Should your ex-spouse so choose, they can also cash out the portion due to them without facing an early withdrawal penalty. They would owe income tax on the disbursement, however. Thus, you should ensure that your QDRO absolves you of any tax liability.

Keeping your full 401(k)

If you worry about the impact that dividing your 401(k) would have on your retirement plans, you can look to keep its full amount. Per the 401(k) Help Center, to do so would require you relinquishing your claim to another marital asset of comparable value.

You can discover more information on dividing up marital property throughout our site.