Divorce presents many financial challenges. If you’ve acquired significant 401k funds during marriage, your retirement account may be at the center of your divorce. Determining how to equitably divide these benefits often lies at the heart of a settlement agreement, as each spouse has the legal right to claim a “community interest” in 401k benefits acquired during a marriage, even if they were acquired solely through the effort of one spouse.
Know Your Options:
When deciding how to divide a 401k with your soon-to-be ex, start by discussing options with your plan administrator. Each plan has its own set of administrative rules. While some plans divide earnings by percentage, others divide by shares, and while some permit a distribution of a portion at the time of divorce, others require participants to wait until retirement. Its important to note, any withdrawal from a 401k before retirement generates tax(es) and penalties which often take a large portion of any amount withdrawn.
The Equitable Split – Four Common Options
Although these four options seem relatively straight forward, you should always consult with a family law attorney to ensure your retirement and all other marital assets are properly valuated and divided so you don’t face an uncertain financial future.