Tags: Retirement | divorce | 401k | rights

Divorce and Your 401(k): What Are Your Rights?

By    |   Monday, 27 Apr 2015 10:57 AM

Your 401(k) is part of marital property, so your spouse has legal claims to at least a portion of it during divorce proceedings. You have rights too, and knowing your options helps in dividing it fairly and properly for a divorce settlement that satisfies both of you.

In some ways, a 401(k) plan is more difficult to divide than other possessions in a divorce. A home, for example, can be sold or refinanced to split equity that satisfies both parties, according to the settlement. With a retirement plan, any option needs to be approved by the court and by the administrator of the plan.

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The 401(k) account goes through a process of division by divorce decree. You will need a qualified domestic relations order, known as a QDRO, drawn up by your attorney. The QDRO must be signed by the court judge and approved by the 401(k) plan's administrator.

The QDRO spells out how the plan is to be divided. Your spouse becomes an "alternate payee" and receives payment based on the settlement. The order stipulates the method used to disburse the funds.

This might include rolling over a certain amount of proceeds into the spouse's retirement plan or leaving the funds in the account, allowing the spouse to take out portions upon your retirement. The QDRO could also order a lump-sum cash payment if that agreement has been reached.

Discuss your options with the plan administrator. Each company plan is different. Some plans allow disbursements as soon as the divorce is settled while other plans don't allow distributions until retirement.

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It's important that you understand your plan's guidelines. Research the plan yourself before talking to your attorney or financial planner, well before the divorce decree, advises family law paralegal Laura Johnson, author of "Divorce Strategy: Tactics for a Civil Financial Divorce."

Although the 401(k) is part of marital property, your spouse's retirement plan also plays a role in divorce negotiations. You should include your spouse's holdings when trying to reach a settlement so you might be able to maintain a larger portion of your 401(k).

Talk to your attorney about excluding funds that were in your account before you were married. State laws differ, but you might be able to divide only the money you contributed to your 401(k) during your marriage.

Stop funding the 401(k) as soon as you legally can after discussion of a divorce begins, according to Emily W. McBurney in The Huffington Post. Plans and state laws have different regulations, so talk to an attorney and the plan administrator about stopping contributions in order to hold onto more of your money.

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Your 401(k) is part of marital property, so your spouse has legal claims to at least a portion of it during divorce proceedings. You have rights too, and knowing your options helps in dividing it fairly and properly for a divorce settlement that satisfies both of you.
divorce, 401k, rights
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2015-57-27
Monday, 27 Apr 2015 10:57 AM
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