While most New York residents who are entering into divorce proceedings may be fully prepared to split their marital assets with their soon-to-be ex-spouses, they may be less than willing to part with any of their saved retirement income. Yet the contributions made to a retirement account (such as a 401k) during a marriage come from marital income (and are thus considered to be marital assets). How, then, might one be able to avoid having to divide up their 401k in their divorce?
It may not be easy. Keeping the full value of one's 401k requires the cooperation of their ex-spouse, which may be unlikely due to lingering emotions one (or both) sides may be harboring stemming from the end of their marriage. Plus, according to CNBC.com, when the court issues a Qualified Domestic Relations Order in a divorce case, one can make a current withdrawal from a retirement account without incurring the typical early withdrawal tax penalty. This provides one's ex-spouse with added incentive to hold on to their portion of any 401k contributions.
Knowing this, those hoping to retain their full 401k must be prepared to compromise by relinquishing their claim to another marital asset of comparable value. In doing so, they are essentially compensating their ex-spouse for the amount they are giving up by forgoing their interest in the 401k. Yet according to The 401k Help Center, one should understand exactly how much they may be giving up by fighting to keep their full 401k. The overall value of the contributions subject to property division is not their current monetary value, but rather that which it is projected to be after years of earning income through investments and interest. Thus, one might have to relinquish their claim to a highly valuable marital asset to keep their 401k.