Marital Asset Division: FAQs About 401(K)s
Dividing marital assets during a divorce can be complex, especially when it comes to splitting retirement accounts like a 401(k). In New Jersey, an equitable distribution state, marital assets and debts are divided fairly — but not necessarily equally. This means that each spouse’s contributions and other factors are considered when dividing property. But 401(k) accounts also have their own set of rules, and this can add confusion to proceedings if you’re not prepared.
What will happen your 401k in divorce? Get some insight with answers to frequently asked questions about dividing retirement assets.
Is My 401(k) Considered a Marital Asset?
A good rule of thumb is that any money contributed to your 401(k) over the duration of the marriage is subject to division. This includes both employee and employer contributions, as well as any interest earned. In most cases, the duration of a marriage is considered to begin on the date of the wedding and end when the complaint for divorce is officially filed.
How Is My 401(k) Valued?
If you don’t have access to your 401(k) statements, your employer or human resources department should have the necessary records. Typically, it’s the value of the 401K on the date of the official divorce filing that will be used as the calculation in asset division. This information is usually readily available. If there’s a dispute over the account’s value, a pension appraisal company can conduct a formal valuation.
How Is a 401(k) Divided in Divorce?
Once the martial portion of the 401k is determined, the asset will be divided according to various factors used in equitable distribution. These include:
Each spouse’s income and earning potential
Contributions to the marriage (both financial and non-financial, such as raising children)
Age and health of each spouse
Future financial needs and retirement security
Typically, there is negotiation room on how the asset divided, especially if you are mediating or negotiating your own terms. If you wish to protect this asset for yoursef, one option is the spouse who contributes to the 401k offering to “buy out” the other spouse from their share, usually using other marital assets as compensation (i.e., the other spouse gets the house in exchange for giving up claim to the 401k).
What Is a Qualified Domestic Relations Order (QDRO)?
A Qualified Domestic Relations Order (QDRO) is a legal document, drafted by a pension expert and signed by the judge in your matter, that instructs the plan administrator on how to divide the account upon withdrawl or retirement. The QDRO specifies either a percentage or a formula to determine your spouse’s share. This document become part of your final Marital Settlement Agreement and is also left on file with your plan administrator.
When Will My Spouse Receive Their Share?
This depends on the specific QDRO plan. In some cases, your spouse may be able to withdraw or roll over their portion immediately, though tax consequences may apply. In others, they may need to wait until you retire. Consulting a financial planner can help you understand the best options for handling your 401(k) division.
What Should I Do Next?
If you’re going through a divorce and have questions about your 401(k), consider these steps:
- Speak with HR or your plan administrator to confirm plan details, contribution timelines, and payout options.
- Consult a financial planner to understand potential tax implications and long-term effects.
- Work with an experienced family law attorney to ensure your retirement assets are properly addressed in the divorce settlement.
Have questions about divorce and your retirement assets? Schedule an initial consultation with one of our highly qualified family law attorneys. Please call us at 888-888-0919, or click the button below.
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