The QDRO (Qualified Domestic Relations Order) is what dictates the distribution of assets in a divorce settlement and is obtained from the court. This is a delicate question to answer as it is determined by the law not the plan administrator, though the plan administrator may have language to reflect the splitting of assets.
As the other advisor have mentioned, a 401(k) or pension plan is a marital asset and regulations can vary by state. When deciding how to divvy up your 401k account with your soon-to-be ex, start by discussing options with your plan administrator. A lot of what you can do with your 401k is directed by the plan. Each plan has its own set of benefit provisions and administrative rules. While some plans divide earnings by percentage, others divide by shares. And while some permit a distribution of the ex-spouse's portion at the time of the divorce, others require recipients to wait until retirement. Before you talk to your lawyer, financial planner and accountant - and well before your divorce decree is drafted - you need to do your own research into your plan's guidelines and don't expect anyone else to do it for you because in many cases, they won't. Once you've researched your plan administrator's rules and stipulations, you'll likely have one or more of the following options for dealing with your 401k in the divorce decree. Option 1: You keep all of your 401k, and your spouse takes other marital assets of comparable value Option 2: You and your ex-spouse split the 401k assets. If you want to split your 401k account with your ex rather than hashing out a division of marital assets equal in value to the 401k, then you will need a Qualified Domestic Relations Order. A QDRO (pronounced "quadro") is a court order that creates the right for an alternate payee (in this case, your ex-spouse) to receive all or part of your plan account. The QDRO must be a judgment, decree or order that is made pursuant to a state domestic relations law and relates to the provision of child support, alimony payments or marital property rights. Option 3: You liquidate the portion of your account that is needed to satisfy the QDRO, and you give your spouse a lump sum. Your attorney will best suited to discuss the options available and help guide you through the process.
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One very important suggestion that's not been offered here relating to your situation, when the divorce action is final, if you have any 401(k) balance left, BE SURE to change the beneficiary on the account. Your 401 account will not be shut down simply because the present balance or some portion of the balance is transferred out because of a divorce settlement. A lot of family animosity develops during the course of a divorce. You don't want to contribute to it later by building up a large account balance in your retirement account post divorce and having that balance go to your ex upon your demise, simply because someone forgot to remind you of the beneficiary change. If you remarry, your new spouse won't be happy if the beneficiary change is not made. I don't envy the situation you're in.
That depends on what happens in your divorce negotiations. Your 401K is a financial asset like any other and goes into the calculation of the total assets which you and your spouse bring to the table. In the divorce settlement you will agree on how much of the total each gets. If you agree to have all or part of your 401K go to your spouse, you can transfer those balances to her without it being a penalized or taxable event.
Another thing to consider is that if you want to keep your 401k, assuming you have enough other marital assets to divide, you can offer an offsetting asset in lieu of your retirement plan. If this is in fact a possible option, just remember that not all assets are equal when it comes to liquidity and tax implications. For example, ofsetting your retirement account with an equal cash asset does not take into account that you will pay taxes on distributions down the road and the cash asset has virtually no tax consequences. This can be complicated and there are a lot of variables to consider so professional assistance is critical. I hope that helps!
John is correct above. The final decree as related to this item is called a Qualified Domestic Relations Order (QDRO). The Department of Labor (DOL) has some good information about QDROs on their website:
The DOL is largely responsible for what is allowed with 401(k) plans. Best of luck.
Brian Pinkston, CFA, CFP®, AIF
Financial Advisor Anchorage, AK
I am not an attorney, and this is not legal advice, but this response is based on my experience. Your 401k (and pension if you have one) is a marital asset, yes. Typically the court will divide retirement assets equally, at least the part that was accumulated during the term of the marriage. There divorce may require a court order called a QDRO (Qualified Domestic Relations Order) which directs the employer to redirect a certain share of the account to the spouse. In the case of a pension, the annuity payments themselves may be split. If the amounts are small, it might behoove both parties to trade another asset rather than go through the QDRO, because there are legal costs associated with getting it drawn up and implemented. Usually the divorce decree only specified that there WILL be a QDRO, but doesn't actually draft one. That means another lawyer, and of course, more $$$.
It depends if your 401(k) was earned while you were married or if it is an asset that you had going into a marriage. I agree with James that a Certified Divorce Financial Analyst can be very helpful when considering your options as it relates to a division of assets. While a CDFA cannot provide legal advice, they can help illustrate the short and long-term implications of the financial decisions made during the course of a divorce.