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Dealing with the division of a 401k

When significant assets must be dealt with in a divorce case, it is important for people in New York to ensure that every resource is thoroughly researched so that final ruling leaves neither side disadvantaged. One such resource is a 401k. Many go into divorce proceedings failing to realize that 401k contributions made during a marriage are considered to be marital property. Given the earning potential that funds in a retirement account have, the money to be divided from a 401k can ultimately be among quite high.

Yet many often wonder how can a 401k be divided prior to its holder reaching the age of retirement. During property division proceedings, the court can issue a Qualified Domestic Relations Order which authorizes retirement plan providers to make payments to alternate payees. This means that the spouse who was not contributing to a 401k can take the portion of the marital contributions owed to them and use it how they see fit. Most would think that they would be limited in how they can use that money given that early withdrawals from a retirement account invoke a tax penalty. Yet according to information shared by CNBC.com, a QDRO allows a lump-sum withdrawal to be made without any penalties.

Of course, should one choose to withdraw their portion of those contributions right now, they lose out on the potential earning they may generate over the long term. Thus, the 401k Help Center proposes another potential solution: the non-contributing spouse can choose to roll their portion into their own retirement account. They could also push to gain total ownership of another marital asset by offering up their claim to their share of their ex-spouse’s 401k in exchange.