How to Protect Your 401k in a Divorce

Your ex-spouse will generally have access to a marital share of your retirement accounts after a divorce, but there are ways to protect your retirement plan and financial assets.

This article will help answer frequently asked questions about what happens to a 401(k), or other similar retirement accounts, in the event of a divorce.

Financial Steps To Consider Before Divorce

Before you think about the divorce decree, you may want to meet with one of these professionals:

It is essential to review your:

  • Roth IRA and individual retirement account
  • Life insurance policies
  • Credit cards and debt
  • Retirement income
  • Court orders related to a former spouse or child support
  • Legal documents such as wills and prenuptial agreements

Gathering most of this information is free. A divorce attorney can also review your retirement planning and offer legal advice on your retirement account balances and the divorce agreement.

  • How are 401(K)S typically split during a divorce?
  • What typically happens with 401(k)s and other retirement accounts during a divorce?
  • Are my 401(K), retirement assets, or retirement benefits part of marital property?
  • Does my ex get 50% of my retirement accounts, IRA, or retirement savings?
  • What is a 401(k) divorce cash out?
  • What is a qualified domestic relations order (QDRO)?
  • Is it legal to cash out your 401(k) before a divorce?
  • Can you legally hide 401(k) assets during a divorce?
  • What to consider during a divorce
  • How can I protect my 401(k) in a divorce?
  • What is 401(k) hardship divorce withdrawal?
  • Should you stop contributing to a 401(k) during divorce?
  • Questions? Attorneys offer free consultations

How Are 401(k)s Typically Split During a Divorce?

Any funds contributed to the 401(k) account during the marriage are marital property and subject to division during the divorce unless there is a valid prenuptial agreement. For example, if you were married for five years and contributed $50,000 to your retirement account or pension plan during that time, your spouse would likely be entitled to a 50% share or $25,000.

Remember that whether your spouse ends up with a part, all, or none of your 401(k) depends on how your overall marital assets are split. For example, if your spouse also has a retirement account worth a similar amount, you may each decide to keep your accounts.

What Typically Happens With 401(k)s and Other Retirement Accounts During a Divorce?

The division of retirement accounts is typically one of the most complex divorce issues. There are tax implications and unique rules and laws that apply.

For example, a divorce is a rare time that allows you early access to your 401(k) or IRA without a tax penalty if your spouse is awarded part of your account.

Dividing retirement accounts during divorce is also tricky because investment accounts are tied to the stock market, so changes in the stock market directly affect your account's value. That's why very specific language has to be used in the divorce decree.

Are My 401(k), Retirement Assets, or Retirement Benefits Part of Marital Property?

Yes, unless a prenuptial agreement or other arrangement protects your money from being marital property. If not, anything earned or purchased after you filed your marriage certificate will likely be considered marital property and subject to division based on the laws in your state.

Does My Ex Get 50% of My Retirement Accounts, IRA, or Retirement Savings?

Not automatically, but it depends on the state laws where you're getting divorced. Most states follow equitable distribution laws, which means marital property is divided "equitably" but not always equally. A smaller number of community property states divide all marital assets 50/50 in a divorce. If you and your ex-spouse cannot agree on the property division, the courts will use state family law in the divorce proceedings.

What Is a 401(k) Divorce Cash Out?

Many people going through divorce need cash for a down payment on a new house or to cover living expenses before finding a job. One way to access cash is to take a lump sum payment from your ex's retirement account as part of the property settlement.

Generally, taking money from a 401(k) before 59 ½ would have a 10% penalty fee. But, early withdrawals can be made as part of a divorce settlement without this fee by following specific rules, including using a Qualified Domestic Relations Order (read more below).

Note: The cash out would still be taxed according to your income tax rate. You should contact a tax specialist to understand the possible tax consequences.

What Is a Qualified Domestic Relations Order (QDRO)?

Some retirement accounts, including pensions and 401(k)s, can only be divided with a special order called a Qualified Domestic Relations Order (QDRO). The QDRO tells the plan's administrator how to pay the non-employee spouse their share of the plan benefits.

Is It Legal to Cash Out Your 401(k) Before a Divorce?

After a divorce starts, it is generally not permitted to dispose of marital assets such as retirement accounts. Also, just because you empty the account doesn't mean your spouse won't just ask for their marital share, so you could still have to pay. Finally, while you can cash out your 401(k) whenever you want, there is a penalty fee of 10% if you are under age 59 ½, and you will owe income tax.

Can You Legally Hide 401(k) Assets During a Divorce?

It is illegal to hide your financial assets during a divorce, but not in the way you might think. No laws explicitly say hiding assets is illegal; however, you are asked to present the truth during a divorce. To hide a bank account would be perjury, a crime.

What To Consider During a Divorce

Once you begin the divorce process, retirement account issues to consider include:

  • Income taxes, tax-free income, and your tax bracket
  • Rollover accounts
  • Prenuptial agreement, if any
  • Whether your state is a community property or marital property state
  • Savings accounts and overall retirement funds
  • Any specific terms you outlined in the divorce settlement (like getting to keep the cabin or a family pet)
  • Stocks or other payouts

These considerations will eventually lead to the final number your ex gets in the property division.

How Can I Protect My 401(k) in a Divorce?

There are many options to keep as much of your 401(k) as possible during a divorce. You can consider selling your home, how close you are to Social Security (age 62), gathering evidence that keeps more money in your pocket, and making lifestyle changes that put more money back into your 401(k).

Remember, the divorce will have a negotiation phase so that you can offer something else to your ex instead of money from your 401(k).

There may not be a way to stop your ex from getting some of your 401(k), but you can make changes to put money back into the account after the divorce.

What Is 401(k) Hardship Divorce Withdrawal?

A hardship withdrawal or "hardship distribution" lets you take money from your 401(k) without the 10% penalty fee if you are ordered by a court to provide the funds to your ex-spouse or children.

Should You Stop Contributing to a 401(k) During Divorce?

The choice is up to you, but you will first need to check your plan to see if you are within the time frames that let you change your plan enrollment status or contribution amounts. Some people find that stopping retirement contributions when a divorce is pending helps to free up cash for bills and attorney fees.

However, remember that whatever you invest after the date of separation may or may not be considered your separate property.

Questions? Attorneys Offer Free Consultations

Splitting retirement requires many people to seek the advice of an experienced attorney, even if their divorce is amicable. Call a divorce lawyer for a consultation to see what they recommend for your 401(k) and other retirement accounts. If you develop a client relationship with a divorce attorney, they can help you with every step of the divorce process.

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Can I Solve This on My Own or Do I Need an Attorney?

  • You may not need an attorney for a simple divorce with uncontested issues
  • Legal advice is critical to protect your interests in a contested divorce
  • Divorce lawyers can help secure fair custody/visitation, support, and property division

An attorney is a skilled advocate during negotiations and court proceedings. Many attorneys offer free consultations.

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Don't Forget About Estate Planning

Divorce is an ideal time to review your beneficiary designations on life insurance, bank accounts, and retirement accounts. You need to change your estate planning forms to reflect any new choices about your personal representative and beneficiaries. You can change your power of attorney if you named your ex-spouse as your agent. Also, change your health care directive to remove them from making your health care decisions.

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