As you prepare to enter into the property division portion of your divorce proceedings in West Caldwell, you may have an idea of what you hope to achieve from such efforts. Yet when you learn that your ex-spouse’s 401(k) is subject to division (or, more specifically, the contributions made to such an account during your marriage), you may scramble trying to determine what to do with the portion owed to you.
It makes sense that the court views as assets as shared (as they come from marital income), yet with the prospect of you receiving them now appearing to be a reality, you will want to know how 401(K) are typically treated in a divorce.
Dividing up the 401(k)
Past posts on this blog details the function of a Qualified Domestic Relations Order in a divorce case. How might it apply to the division of your ex-spouse’s 401(k)? A QDRO authorizes a 401(k) account provider to make disbursements to an alternate payee. Upon the issuing of this order, the plan provider can then divide your ex-spouse’s 401(k) into two accounts, with your funds rolling over into your own account (whose management you can them solely assume). If you have an existing retirement account, you can also choose to roll the funds over into that account.
Cashing out your portion of a 401(k)
The common school of thought is that you cannot make a withdrawal from a 401(k) prior to reaching the age of retirement without incurring a penalty. Yet according to CNBC.com, divorce is one of the few cases where a withdrawal does not net a penalty (you will still have to pay income tax on the disbursement).