Free Confidential Consultation


Dealing with a 401k during a divorce

Mar 31, 2019

The property division process can easily become contentious. Oftentimes, parties to a divorce in Wilmington may not completely comprehend why certain assets would be considered marital property, and this can lead to discord. One such asset is a 401k. Those who contribute to a 401k may wonder why such a benefit (which is due to their own individual efforts), would be a shared asset. On top of that, they may have concerns that if a portion of their 401k is withdrawn to give to their former spouse (prior to either reaching the age of retirement), they may be forced to pay a tax penalty.

When addressing the first question, one should consider where 401k contributions come from. A portion is taken from one’s salary; the remainder is often made through matching contributions from their employer. The money earned from salary during a marriage is considered marital property. It should not be viewed as a surprise, then, that given that 401k contributions come from that money that they would be considered marital assets.

Typically, early withdrawals from a 401k prompt a tax penalty (which can often be as high as 10 percent). However, divorce presents a special case. According to information shared by CNBC, when a court issues a Qualified Domestic Relations Order in a divorce case, the alternate payee of a retirement account (in this case, the non-contributing spouse) can withdraw their funds without being penalized.

For those who wish to retain the total value of their 401k’s, the 401k Help Center suggests a potential solution: relinquish their claims in a marital asset of equal value on the condition that their ex-spouse give up their share in the 401k.

Your Free Consultation

Can Be The First Step Toward Solving Your Problem

Our attorneys listen and do not judge. We look for ways to help you through this challenging time. Schedule a free, no-risk consultation with an attorney.


Recent Posts