Robert G. Smith, PLLC
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Are 401(k)s subject to property division?

Some residents of New York that have 401(k)s may be concerned to learn more about what may happen to them in the event of a divorce. Retirement accounts, such a 401(k), are generally subject to qualified domestic relations orders that establish the circumstances where the account may be redistributed.

Although QDROs can be a useful tool for courts to handle 401(k) redistribution, they can lead to complications if they are not drafted properly. Money that is removed from a 401(k) for redistribution to an alternate payee is not subject to the early withdrawal federal income tax penalty unless the QDRO is not properly established. On the other hand, a QDRO that has not been properly established can potentially lead to a situation where the original owner is obliged to pay the 10 percent penalty on money they no longer own.

In most states, 401(k) funds will be divided during the divorce, but they may not be evenly split. Factors such as the duration of the marriage, the circumstances under which other marital assets are subject to redistribution and the extent to which both spouses contributed to the marriage can make a difference in the division process.

Someone that desires more specific information about their 401(k)s or other forms of retirement accounts in the event of a divorce may wish to consult their situation with an attorney. In addition to providing legal advice that is tailored to someone's individual circumstances, an attorney may be able to assist a client in assembling documentation necessary to substantiate their case in a divorce and safeguard their financial interests.

Source: 401k.org, "401(k) and Divorce", January 07, 2015

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