What Happens to Retirement Funds and 401(k) Plans in a Divorce

This article was written by Anna Rodriguez, a NYC divorce lawyer with Raiser & Kenniff, PC.

When people get divorced, assets are always split up. They are done either equally, or in some mutually agreeable manner. In most cases, the retirement account – like an IRA, or 401(k), is split at the end of the marriage. In a divorce, each person is entitled to a share of the split.

It’s possible that a portion of the retirement account, can be considered sole property. ¬†For instance, if you have $100k in a 401k account before you were married, or had an IRA that you solely contributed to – before, and during, the marriage – then the money can be exempt from the divorce. However, if there are contributions or growth based on your contributions to the account after marriage – then that growth is considered joint property. That joint property, is what will be distributed in a divorce.

If there’s a prenuptial agreement in place – then this can drastically alter what will happen. The prenuptial agreement is a customized divorce contract. It bypasses state laws regarding property division, and asset division. As a result, the rules of your state may be totally ignored as a result of the prenuptial agreement. For example, your prenuptial agreement could state your spouse takes all the retirement accounts and 401k accounts as a part of the divorce. Alternatively, the agreement could state the retirement accounts will only be split if the marriage lasts 10 years or more. Before you agree to the prenuptial agreement, it’s a good idea to bring your attorney to any proceeding. An attorney can determine if the prenuptial agreement is valid, or if it can be enforced. If the agreement isn’t valid, then the state laws “kick in,” and apply to how the assets will be split – and in what proportion.

Timing is a huge role in when/how the retirement account will be split. In some cases, a spouse may ask for access to the funds immediately. However, this may result in – income taxes being penalized if the spouse is under the age of 59. As a result, it may be advantageous to wait to split that money after 59 years age. It’s also possible to conduct what’s called a qualified domestic relations order. This makes it possible to transfer money from one spouse’s account to another, without incurring any taxes or penalties.

Divorce is complicated, – emotionally and financially. As a result, it’s a good idea to end the process as soon as possible. Speak with an attorney as soon as possible.




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