How Is a 401(k) Split in a Divorce?

Factors a court will consider

By Kimberly Lekman, Esq. | Reviewed by Canaan Suitt, J.D. | Last updated on March 31, 2023

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Untangling your finances from your spouse’s can be one of the most complex aspects of divorce.

However, you do not have to sacrifice your financial security or retirement savings just because your marriage is ending. Your 401(k) is usually only one portion of your total marital assets.

The division of these assets in a divorce will depend on your overall financial picture and your state’s laws. A skilled family law attorney can help you work out a mutually acceptable agreement with your former spouse. In the meantime, the below information will help you understand how 401(k)s are typically divided when couples divorce.

How Are 401(k) Assets Divided in Divorce?

The 401(k) savings you accrue during your marriage are usually treated as marital property.

Marital property is subject to division as part of a divorce. Your other marital property might include your family home, vehicles, bank accounts, and other assets you acquired during your marriage. However, any 401(k) savings you accrued before your marriage are separate property. Separate property is typically not divided during a divorce.

Equitable Distribution versus Community Property

The precise division of your 401(k) assets will depend on your state laws and your other assets.

A minority of states maintain a “community property” standard for the division of property in a divorce. Your marital assets are generally divided equally between you and your ex-spouse in a community property state.

But most states follow an “equitable distribution” model. With “equitable distribution,” a judge will divide your assets “equitably” but not necessarily equally.

Instead of splitting marital assets 50/50, a judge in an equitable distribution state will consider things like whether one spouse put the other through school or whether one of the spouses cares for the children full time. The judge will then weigh these factors and work out a fair distribution of marital property under the circumstances.

Factors in Equitable Distribution

Other factors a judge will consider in an equitable distribution state include:

  • The length of the marriage
  • Age of the spouses
  • Alimony or child support payments
  • Child custody arrangements and child-rearing contributions
  • Each spouse’s financial outlook and earning potential
  • Each spouse’s contributions to the marital property
  • Other account balances such as Roth IRAs or pension plans
  • Debts such as car loans or credit card debts

Any of the above factors and more could play a role in the outcome of your divorce decree in an equitable distribution state.

Speak With a Lawyer About Your State’s Marital Property Laws

If you are not sure whether you are in a community property or equitable distribution state, it would be wise to talk to a divorce attorney for some legal advice.

Your attorney can also help you negotiate a divorce settlement with your former spouse. For instance, suppose your spouse has a pension plan or other retirement savings. It might be best for both spouses to agree to keep their own retirement funds rather than going through the hassle of splitting up both accounts.

Further, a settlement allows you to work out your own property division agreement with your former spouse. This is preferable to leaving the decision to a judge for many people. As long as the settlement agreement you reach is reasonable, a judge will likely approve it without modifications. In fact, most divorces resolve with a settlement. By negotiating a settlement with your spouse, you can avoid the stress and uncertainty of prolonged divorce proceedings.

Can I Withdraw Funds From a 401(k) In a Divorce?

Yes. In some instances, it might be best for one of the divorcing spouses to take a cash payment from the other spouse’s 401(k) as part of the divorce. This way, they can fund a new home or vehicle that they might need. They might agree to give up their portion of another marital asset in exchange for this payment.

You would usually be subject to a withdrawal penalty for cashing out 401(k) funds before the age of 59 ½. But if you need to withdraw funds as part of a divorce settlement, you can make an early withdrawal without incurring this fee. Although you will avoid the early withdrawal fee, your payment will still be subject to income taxes.

If you or your ex-spouse are going to take a payment from the other spouse’s 401(k), you will need a Qualified Domestic Relations Order (QDRO) to make this change.

A QDRO is a court order to a retirement plan administrator to pay some of your benefits to someone else. If you and your ex-spouse decide to divide your retirement accounts, you will need this or a similar document.

You can get more information about QDROs from the Internal Revenue Service (IRS) website. The IRS website also provides information about the tax consequences of receiving a spouse’s retirement benefits. If you are receiving 401(k) benefits from your former spouse, you might want to consider rolling those benefits into another 401(k). A rollover can be beneficial for tax reasons, but it will depend on your personal financial situation.

It’s best to talk to an experienced divorce attorney or financial advisor to ensure that you handle your retirement funds in the best way for you.

How Can an Attorney Help?

Going through a divorce can be one of the most stressful events in your life. As you navigate a changing set of family dynamics, it can be helpful to have expert legal counsel to shoulder some of the burden.

In partnership with your financial advisor, your attorney and law firm staff can estimate the total value of your marital assets. These assets include your family home, furnishings, electronics, and other property you acquired during your marriage. A fair evaluation of these assets will be necessary for working out a reasonable settlement.

An experienced divorce lawyer can then facilitate a negotiation between you and your ex-spouse. Further, they will advocate for your best interests in the divorce process.

Finally, your lawyer will prepare the necessary legal paperwork, such as the formal settlement agreement and QDRO, if needed.

What do I do next?

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