Dealing with a 401(k) during property division

On Behalf of | Jan 15, 2021 | Uncategorized

Those preparing for divorce proceedings in Ohio likely understand the need to equitably divide up their marital assets. Thus, most might have few problems with that prospect. Yet one asset that many may not anticipate being subject to property division is a 401(k).

Most people assume a 401(k) to be an individual asset (since it typically comes through one’s individual employment). The contributions made to a 401(k) during a marriage, however, come from marital income, thus making those contributions marital assets.

Options for dividing up a 401(k)

The question then inevitably becomes how does the court divide a 401(k) during divorce proceedings. In many cases, the court issues a Qualified Domestic Relations Order, which authorizes a 401(k) plan sponsor to make a disbursement to an alternate payee (in this case, the non-contributing spouse). After the issuing of the QDRO, the 401(k) plan sponsor can then divide up the account into two separate accounts (with both sides assuming control of their respective accounts).

One might wonder whether they can cash out the portion of the 401(k) owed to them. Typically this will result in an early withdrawal penalty (usually 10% of the disbursement amount). However, according to information shared by CNBC.com, divorce is one of the few scenarios where one can take an early withdrawal without incurring a penalty.

Is keeping one’s full 401(k) an option?

A 401(k) account holder may have concerns that dividing up their account will dramatically alter their retirement plans. For these people, the 401(k) Help Center proposes an interesting option. By agreeing to forego one’s interest in another marital asset of comparable value, they may convince their ex-spouse to forego their portion of their 401(k).