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How is a 401(k) plan divided through divorce?


The divorce process has the tendency to cause disputes to erupt. It is often difficult to sort through all the assets and property that are included in a marriage, but divorcing couples in Minnesota and elsewhere can take the time to ensure that they are leaving the marriage with what is rightfully theirs. This includes retirement assets.

Many divorcing couples are concerned about what will happen to their 401(k) at the time of divorce. This account tends to accumulate many funds, which means there could be a lot at stake.

The property division process of a 401(k) account can be broken down in three steps. The first and most important step is to identify when the funds within the account were actually placed in the account. This is important because any funds placed in these accounts prior to marriage are usually considered to be separate property and not eligible for distribution to both parties in the divorce process.

The next step to take is to calculate the division of the shared assets. The form of division is dictated by the state in which you live. Minnesota, for example, recognizes equitable division. It is important to note that equitable does not mean equal. Instead, a judge may decide to split assets differently by looking at the entire picture. While the goal remains to provide equal divisions of assets, a judge will look at all the marital assets to determine what a fair split looks like.

Finally, once a divorce settlement has been reached and the spouses agree to it, a qualified domestic relations order regarding the retirement account must be filled out and submitted. This documents indicates how this account will be split according to the divorce order. Additionally, the name of the other spouse must be added to the 401(k) account as an additional payee. This document finalizes the agreement and enacts the distribution plan.

As you can see, the property division process can be complex. It can take spouses a lot of time to sort through each and every asset they own, which is why it is imperative that divorcing spouses understand their legal options and rights when heading towards a final divorce decree.

Source: Investopedia.com, "3 Steps to Divide Your 401(k) During Divorce," Shawn Leamon, March 30, 2017

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