Depending on how long you’ve been married and how regularly you’ve been contributing to your 401(k), it’s possible that your 401(k) is the most significant and complicated asset in your marriage. This is especially true if you’ve put a significant amount of money into it over the course of your marriage. In the case of a divorce, a 401(k) will be regarded as marital property, which means that its value will be susceptible to partition just like any other married asset.
In the event that efforts to mediate a dispute outside of court are unsuccessful, you may consult with a family law attorney about the various legal options.
In order to split a 401(k) in a way that is compliant with the law, there are three procedures that must be taken:
- Your divorce decree needs to include an order dividing up all of your property and assets.
- In order to divide your 401(k) in a way that complies with the Employee Retirement Income Security Act, you or your attorney will need to draught a legal document that is referred to as a “qualified domestic relations order” (QDRO). This document will provide your 401(k) administrator with the specifics of how to do so (ERISA).
- In the end, the QDRO needs to be sanctioned and signed by the judge of the family court. After that, the administrator of the plan needs to sanction it as well because they are responsible to the federal government if the order contains errors
Your spouse will be designated as a “alternative payee” under the QDRO, which means that they will be eligible to receive payments from your 401(k) in the event that you are unable to do so (k). Either your spouse can choose to roll the funds over into her own retirement plan or she can choose to have her portion remain intact with yours in the old plan, at which point she can start drawing her payments after you declare retirement. Additionally, she has the option of receiving the money in the form of a cash payment instead of a check.