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What Happens to My 401k in a Divorce?

Posted by Joshua Wilson | May 06, 2020 | 0 Comments

According to Fidelity Investments, the average balance of a 401(k) in March 2019 was $103,700. This number is based on more than 16 million 401(k) account holders in the U.S. The average amount in a 401(k) is generally tied to age. For 20 to 29 year olds, the average balance was $12,000. For 60 to 69 year olds, the average balance was $195,000. 

Money issues are one of the most commonly cited causes of divorce. It is no surprise that in a contested divorce, each spouse may be fighting to get the most money they can, including their share of any retirement savings. How to divide up retirement savings, including a 401(k) in a divorce can be complicated and may require a separate procedure, known as a QDRO.   

Marital and Separate Assets in a Divorce

Like most assets in a divorce, retirement accounts are generally subject to equitable distribution. Equitable distribution divides marital assets and liabilities acquired by either spouse during the marriage. 

Non-marital property, also known as separate property, is all property that is not marital. Generally, assets acquired before a couple marries is non-marital property. Each spouse generally keeps their own non-marital property in a divorce. 

401(k) and 403(b) Retirement Accounts in a Divorce 

A 401(k) and 403(b) retirement savings plans are generally sponsored by your employer, with or without an employer contribution. A portion of each paycheck may be taken out before taxes and placed into the retirement account, which may be eligible for withdrawals after retirement.

With pensions becoming less common than they were in the past, 401(k)s and 403(b)s are some of the most common retirement account options for workers (with 403(b) accounts generally available for employees of schools and tax-exempt organizations). Over the course of a lifetime of employment, a 401(k) can reach into the hundreds of thousands. After a home, retirement accounts may be the second-largest asset to be divided in a divorce. 

Accessing the Other Spouse's 401(k)


Generally, 401(k)s and 403(b)s are divisible during the divorce process for any amount that was earned during the time of the marriage and is considered a marital asset. 

For example, Spouse A has $5,000 in a 401(k) and Spouse B has $1,000 in a 401(k) before they get married. Spouse A stops working to take care of the home and children immediately after marriage. Over the next 20 years, Spouse B's 401(k) increases to $150,000. When they get a divorce, each spouse keeps the amount they had before marriage. However, any amount Spouse B added over the 20 years is marital property and Spouse A is entitled to an equitable share. 

A qualified domestic relations order (QDRO) is separate from the divorce agreement and may be required to divide the assets in a 401(k) or pension. A QDRO can be used to distribute shared interest or separate interest assets in a 401(k). There are specific requirements to drafting a QDRO, which must include certain information: 

  • Name of both spouses,
  • Spouses' mailing addresses,
  • Percentages or flat amounts each spouse will receive,
  • Time period the QDRO covers, and
  • Specific 401(k) or pension plan it applies to.

A separate QDRO is generally required for each retirement account. QDROs should also indicate what will happen to the amounts after, such as rollover or direct disbursement. 

Instead of taking money out of the account and splitting it, spouses can agree to buy out the value of their interest in the retirement account. A negotiated agreement can avoid having to pay a penalty for early withdrawal. For example, the spouses could negotiate to allow Spouse B to keep the 401(k) in exchange for Spouse A keeping the family home. 

Prenuptial Agreement for Retirement Accounts

prenuptial agreement is a contract entered into by individuals in consideration of marriage. The agreement provides for how certain assets, property, and financial responsibilities will be treated in the event of a divorce. The terms of the prenuptial agreement can cover most retirement accounts, including 401(k)s, as long as the agreement is valid, voluntarily entered into, there is full disclosure, and each spouse has the chance to talk to a lawyer before signing.  

Questions About a 401(k) in Divorce?

If you are thinking about filing for divorce and want to know about protecting your assets and savings, contact the Joshua Wilson Law Firm in Raymore today. You can reach us by phone at (816) 331-9968 or fill out our online form. During any stay-at-home orders or for your peace-of-mind, our office is virtually capable to keep you connected while staying safe.  

About the Author

Joshua Wilson

Divorce is complex and highly emotional. Everything is going to change, including your most important personal relationships, your finances, your daily routine, and -- of course -- your home life. This can be a stressful time, and the parties involved often are not thinking clearly. You need some...

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