Many couples undergoing divorce discover that one of the most challenging parts of this process is deciding how to divide their assets. While dividing a basic checking or savings account can be relatively easy, one of the more complicated assets to divide is a 401(k). If you are currently undergoing a divorce and are facing this problem, it can help to understand some of the important details about dividing a 401(k) account.

What is a 401(k) Plan?

401(k) plans are a type of retirement plan that are sometimes referred to as defined benefit plans, which means that the value of the account can often be easily determined. While the value of (401)k accounts can change over time, the accounts always have a fixed value. Even if the value of a 401(k) plan consists of marital and separate property, it is often still possible to determine what portion of the 401(k) is which.

The Nature of 401(k)s

In deciding how to divide property during a divorce, courts base their initial analysis off of whether property is either marital or nonmarital in nature. Some assets, however, contain both marital and nonmarital property. For example, a spouse who owned a 401(k) plan before a marriage but who contributed to the plan during it might have the account viewed as both separate and marital property.

A Court Order is Required to Divide a 401(k)

Pulling money from a 401(k) to finalize your divorce is not something to be done impulsively. Instead, a judge is first required to sign an order stating that each spouse has a right to part of the money. These orders also important because they help parties avoid withdrawal penalties associated with taking money out of an account. If a couple has several types of employer-sponsored plans, it becomes necessary to obtain separate orders for each account.

How These Amounts are Distributed

Spouses who are allowed to withdraw funds from a 401(k) accounts are often able to do so in one of several ways. First, a person might be allowed to roll finances from a 401(k) into their own qualified retirement plan, which is helpful in avoiding a penalty. A second option is for a person to defer taking a distribution until the owner of the 401(k) account retires. A third option is to cash out your portion of the balance, which offers a person the greatest access to the money in the account but can result in withdrawal penalties.  

Speak with an Experienced Divorce Lawyer

The divorce process is particularly complicated and involves a number of complex subjects including the division of employer-sponsored retirements accounts like 401(k)s. If you have questions about how to properly divide a 401(k) account with a former spouse, you should not hesitate to speak with an experienced attorney. Contact Vayman & Teitelbaum P.C. to schedule an initial free case evaluation.