Terzich & Ort, LLP
Make Your Consultation Appointment Today.
763-391-7354
View Our Practice Areas

Considerations for 401(k) during a divorce


If you are one of the many Minnesota residents who have taken advantage of the investment a 401(k) offers, then you are wise. While going through a divorce, you may wonder how this asset should be divided if you and your spouse have not yet reached your time of retirement. 401(k)'s are specifically designed to be savings accounts for use once retirement age occurs. If this time has not occurred, there are ways to divide this asset without incurring penalties.

Since 401(k) accounts are designed for use after retirement, there can be penalties assessed for those that choose to dip into them before retirement. There are ways to avoid these penalties during the asset division phase of divorce. Early withdrawals are typically susceptible to a 10 percent early withdrawal fee besides taxes and fees. There is something that allows divorcing couples to avoid this fee.

To avoid the fee, one may be interested in what is called a qualified domestic relations order or QDRO, and it can be used during a divorce. Basically, if one spouse is entitled to a share of the ex-spouse's 401(k), a court-ordered QDRO allows the recipient to take the retirement money as cash.

The amount is subject to income taxes, but not the 10 percent penalty. This can be especially helpful for those who are strapped for liquid assets during a divorce, such as cash, since the freed up 401(k) can alleviate some of the financial pressure.

This scenario is particularly believable for families where one spouse was the breadwinner and the other spouse saw to the family duties. Since one person was taking an income, that person would earn the majority of the income and contribute majorly to the 401(k) fund. In comparison the other spouse would likely be on the receiving end assuming no outstanding situations or prenuptial agreements barring the income differential.

Each case of asset division is different and will take a careful set of eyes to determine each specific of the case. Because of that, it is important to understand what asset division are available to divorcing spouses.

Source: nbcnews.com, "Consider this before treating your 401(k) like a cash machine," Sarah Obrien, October 19, 2015

No Comments

Leave a comment
Comment Information
  • Super Lawyers
  • The National Top 40 Under 40 Trial Lawyers
  • Minnesota's Best Lawyers 2016
  • Top 50 Woman Attorneys In Minnesota 2016
  • Avvo Rating 10.0 Superb Top Attorney Family
Email us for A response

How Can We Help You?

Use our Dissolution strategy worksheet to prepare for your first meeting.

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

11284 86th Ave
Maple Grove, MN 55369

Phone: 763-391-7354
Fax: 763-391-7589
Map & Directions