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Is Your Spouse Entitled to Your 401(k) During a Divorce?

Perhaps one of the most difficult aspects of getting a divorce is figuring out how to divide your assets. Unfortunately, for couples with retirement accounts and 401(k)s determining who gets what according to Florida’s equitable distribution laws proves to be just as complicated. However, there are some basic rules to apply when dividing retirement accounts, which are helpful. Today, we go over these rules and what you need to know about dividing your 401(k) account during a divorce.

How to Divide a 401(k) Account

As Florida uses the equitable distribution method, courts in the state divide assets, including 401(k) accounts in a way that they deem fair. The following ways are potential options for dividing a retirement account during a divorce:

  • Provide your spouse with other marital property of similar value and keep your 401(k) for yourself. You will want to get a valuation of this marital property to ensure this exchange is fair and in your best interests.
  • Divide your 401(k) between yourself and your spouse. Be aware that this requires a court order and ample time to process. You will want an attorney’s assistance including this in your divorce settlement paperwork.
  • Liquidate some of your 401(k) and give an allotted amount to your spouse. Before doing so, you should be aware of the tax consequences of taking money out of your 401(k) before you retire. However, if this is a viable option for you due to debt, it may make sense in your situation.
  • Take a portion of your 401(k) and roll it over into an IRA for your spouse. The rollover allows you to move your spouse’s share of the 401(k) over without incurring any penalties or tax liabilities.
  • You and your spouse keep your 401(k) accounts as-is. Some couples may want to keep their divorce simple and straightforward by keeping their 401(k) accounts to themselves therefore preventing the need to divide up retirement accounts in the first place.

You Need a Court Order to Divide a 401(k)

The process of pulling money out of your 401(k) and giving it to your spouse is not as simple as you would expect. First, you must have a judge sign off on a Qualified Domestic Relations Order, which confirms each spouse’s right to the retirement account. If you have any pensions or other retirement accounts, your spouse will need to obtain separate court orders for each of these accounts.

401(k) Distribution Options

If you are a spouse receiving some of a 401(k) distribution, you have three options for acquiring the money your spouse owes you. The first option is to roll over your portion of the account into your own retirement plan via a direct transfer. The second option is to defer taking a distribution until your spouse retires. In this scenario, you can choose to take payment regularly or an entire lump sum. Your third option would be to cash out your portion of the account. While this gives you access to money immediately, it also has withdrawal penalties that could be steep.

Work Out Your Own Agreement as a Couple

Although 401(k) accounts are subject to state law, you and your spouse do also have the option of working out an agreement together regarding fair division. This option is beneficial in the sense that it could save you money, time, and the need to go to court. In the event you decide to move forward with this option, it would be advisable to speak with an experienced attorney to ensure your rights are protected. Due to the financial complexities involved, it would also be beneficial to hire legal counsel to make sure you avoid making a mistake like accidentally withdrawing your 401(k) funds before you retire and being forced to pay fees.

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