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How is a 401(k) handled in divorce?

On Behalf of | Feb 7, 2023 | Property Division

People who have worked for a company that offers a 401(k) may have a hefty amount of money saved for retirement. Individuals who are married likely assume that they’ll use that money to support their household when they retire. They may not think about how this account may cause issues if they go through a divorce.

Retirement accounts are typically considered a marital asset that’s subjected to division if a couple divorces. This could be easy if both spouses have their own retirement accounts that are of equal value. When that’s not the case, the 401(k) might have to be divided. This is done through the use of a qualified domestic relations order.

What is a QDRO?

The QDRO is a court order that tells the 401(k) administrator how to divide the retirement account. It can’t require anything that’s not part of the plan, and it must be accepted by the plan administrator. A QDRO must include specific information about how the plan is divided, including either a dollar amount or percentage of the current account value.

The recipient can choose to receive the funds as cash or they can roll them over into another retirement account. There are tax implications to these options, so be sure you understand those if you’re going to have a QDRO as part of your divorce.

The property division process during a divorce can take considerable work, especially if you have a lot of marital assets. Ensuring you have everything in order is critical, so be sure you have someone on your side who can help you work through it all.