Money is always a major consideration during the divorce process, and that
includes a 401(k) retirement account. Aside from your home, a 401(k) could
be your most significant financial asset, thus making it a contentious
part of the divorce process. However, unlike your home, what happens to
your 401(k) is not quite as simple.
In California, anything earned or obtained during a marriage is considered
jointly-owned property. Unless otherwise agreed upon, a 401(k) account
earned during the marriage is split equally between spouses. While you
can sell your home or refinance it to buy out your spouse’s equity,
you must involve your plan’s administrator when dealing with a 401(k).
Qualified Domestic Relations Orders
Once your divorce orders the division of the 401(k), you or your attorney
must draw up a qualified domestic relations order, commonly known as a
QDRO. This tells the administrator of your 401k how to divide it to comply
with the Employee Retirement Income Security Act, or ERISA. The family
court judge must approve and sign the QDRO, as well as the plan administrator.
Your spouse has three options for collecting their portion of your 401k:
(1) roll the proceeds over into their own retirement plan, (2) leave their
share intact with yours in the existing plan, taking their payments when
you retire or (3) elect to take the money as a cash payment.
According to the IRS, your spouse’s chance to take their portion
of your 401(k) in cash is a one-time deal at the time your plan administrator
approves the QDRO. Beyond that point, unless they are over the age of
59½, they are subject to a 10% penalty for an early withdrawal.
If you’re going through a divorce and need to protect your 401(k),
please contact me at the Law Offices of Jeffrey S. Graff today. As a
Westlake Village divorce lawyer with over 30 years of experience, I can provide you with the personalized
legal solutions you need.
Call me at (805) 633-4999 for a free initial consultation!