Dividing property and assets during a divorce can be cumbersome. There may be anger, pain and frustration, and you and your spouse may fight over some items more than others.
When it comes to splitting your assets, you may think of bank accounts, insurance policies or the house. But what about your retirement account? Is your soon-to-be ex-spouse entitled to your 401k, too? The answer is yes, and if you need to split it, you'll need a qualified domestic relations order.
What is a Qualified Domestic Relations Order?
A qualified domestic relations order, referred to as a QDRO, is a document that recognizes an individual (typically an ex-spouse) as an alternate recipient to the plan holder's retirement account.
How is 401k divided?
Before dividing a 401k, you must determine whether it is separate or marital property. Separate property denotes money that went into the account after the divorce was filed. Marital property describes money that the account accumulated before the divorce was filed.
If your 401k is separate property, then it is not subject to division, and it belongs to you. If it is marital property, your ex is legally able to receive a portion of your 401k.
It is also possible for a 401k to be part separate and part marital property, which could make setting up a QDRO more difficult.
Is there any way around division?
Depending on the circumstances of your divorce, you and your ex could negotiate the division of your retirement account. If you negotiate to receive 100% of the plan in exchange for other assets, this would eliminate the need for a QDRO.
Like many things in divorce, your emotions and feelings toward your ex will only get you so far. It can be frustrating to learn that your ex is entitled to part of your 401k, but it's important to try your best to remain level-headed during the process.
Though it may seem a simple matter, dividing your retirement account can be complex. Distinguishing between separate and marital property may require professional assistance and can change how your 401k is divided. Taking careful steps to ensure everything is done correctly can help the process move along more smoothly.