Best 401 k in a Divorce Guide 2019

While no one marries with the intention to later separate, if divorce or legal separation is in your future, make sure you understand the implications against retirement savings.

If you or your spouse have money in retirement plans, you’ll most likely have to share the assets.

Retirement accounts that include money that was earned during the marriage are considered marital property, and can either be divided up or awarded all to one spouse during property division.

Note that only marital property is subject to division, which means that if a spouse paid into an account before their marriage, then that amount is considered their own separate property.

3 Things you need to know about dividing your (or your spouse’s) 401(k) in a divorce:

  1. You will need a court order:You cannot simply pull money out of your 401(k) account or you will end up facing a withdrawal penalty and taxes. To properly split your 401(k) account, you will need a Qualified Domestic Relations Order (QDRO), which will confirm each spouse’s right to a portion of the money, letting you off the hook for the aforementioned penalties and taxes. If you or your spouse also happen to have a pension or other employer-sponsored plan, you will need separate orders for each account. However, you do not need a QDRO to split an IRA. There is a separate process for that, which is called “transfer incident to divorce.”
  2. 2.State law will determine how it is divided: Colorado is an equitable distribution state, which means the court will look at a number of factors to determine the division of all of the marital assets, including retirement accounts. Some of those factors include: the financial situation of each spouse, the ability of each person to earn income, the ages of the parties, and the duration of the marriage. Equitably does not necessarily mean equally, so the Court will not automatically provide each party with 50% of the marital assets, although this is frequently the case.
  3. 3.Distribution options: If you are on the receiving end of the 401(k) transfer, there are a few different ways to obtain the money. You can roll the assets over into your own qualified retirement plan through a direct transfer, defer taking the distribution until your former spouse retires, or you can cash out your portion. Cashing out might seem like the best option, but it can be costly. If you are not 59 ½ years-old at the time of the payout, you could end up paying income taxes and a 10% early withdrawal penalty. Each spouse should consult a tax accountant or attorney to assist in determining the best course of action with respect to receiving retirement assets.

 Divorce 401k Split

Keep in mind that you and your spouse may negotiate any number of methods for dividing marital property.

But proceed with caution.

Your share of a pension might have a higher value than the assets your spouse is offering to trade.

If your spouse came into the marriage having already contributed to a 401K, those funds will likely be considered separate property and will not be included in the assets to be divided.

401k and  Divorce Financial Planner

How do I know how to best divide the 401-K in my divorce?

It is best to consult with your financial advisor and/or tax professional to determine the best source of cash for your individual situation, especially when considering taking an early withdraw from a retirement account.

Although divorce is an emotional experience, the more dispassionately you can approach the process, the better the outcome will be for you. After all, once a divorce is final, you’re pretty much stuck with the outcome. It’s critical to have a firm handle on pensions and other retirement investments during the proceedings, even though you may be distracted dealing with a host of other issues at the same time. Remember, your financial future depends on it!

Financial Planner for Divorce Florida

Mintco Financial Advisors is a fee-only financial planning and investment management firm based in Tampa, Florida and Buffalo,NY.

We help individuals and families realize their financial goals by working with them to develop and implement a customized financial strategy.

Our services include financial plan development, investment management and divorce financial planning.

Mintco Financial team is experienced in working with clients through many different life events.

We understand that these circumstances bring about lots of questions and typically involve many emotions.

We bring clarity to your financial situation to help you avoid emotionally driven decisions that impact your investment portfolio and overall financial plan.

If you would like to learn more about Mintco Financial Advisors, have questions for us, or would like to schedule a complimentary “Get Acquainted” meeting to see if we are the right fit for you and your needs, please contact us today!

Call us at 813-964-7100 or 716-565-1300