04 May What Happens to My 401k in Divorce?
When you think of property that must get split during a divorce, what comes to mind? Your home, and any secondary property, as well as cars, are probably at the forefront. Possessions that you and your spouse own are on that list. Money in any joint account is also a thought. But what about your 401k?
Because retirement benefits are a bit more singular – you contribute to your own and your employer may or may not match it – you may not consider this marital property. You might assume that you will get to keep your 401k and your spouse can keep theirs. This is not necessarily the case. Retirement benefits are part of your assets – 401k included – and they must get split according to law.
Texas is a community property state. This means that during a divorce, all community assets must be divided justly – which is commonly a 50/50 split. It is not always a 50/50 split.
Marital, or community, property is any property that was acquired during the marriage. This is what gets split in a divorce. Separate property is property that was acquired by a spouse before a marriage or inherited during it. This property gets to stay with the spouse who owns it.
Retirement benefits, including 401ks, can be both community property and separate property. If you began funneling into your 401k before being married, that is considered separate property. Any money that you put into it during your marriage is considered community property. This goes for your 401k as well as your spouse’s.
401k savings compound interest and have employer matching at times. Your 401k will get assessed by your fund administrator.
When deciding how 401ks will be split, there are a few factors that the court will consider. The first one is how much money is in each 401k. If you and your spouse have similar balances, then you can each decide to keep your own. In this case, neither of you will touch or have access to your ex-spouse’s 401k, now or in the future.
If one spouse has significantly more in their retirement than another, the situation shifts. The court will look for a fair split. The spouse with more in their savings can be ordered to cash out and give their ex-spouse an amount to make it equal. The spouse with more can also give up other community property that would be of equal value. In this case, the 401k would go untouched.
If you are about to begin divorce proceedings, both you and your spouse have a standing order in place prohibiting you from cashing out or moving your 401k money. This ensures that the courts get the correct amount to assess. You will need to get paperwork from your 401k administrator to present. At the end, a qualified domestic relations order will be issued if either spouse needs to pay the other one out.
You and your spouse can also agree that you will keep your own retirement accounts and not ask for each other’s.
If you are getting a divorce, an attorney is recommended. Splitting up assets can seem like a complicated process, and an experienced divorce lawyer can help. When it comes to your 401k, you want to keep as much of it as you can. An attorney will help you through that, as well as splitting all other assets.
If you are in Denton or the surrounding area, contact Navarette Bowen P.C. Our team of experienced attorneys can provide guidance throughout your divorce proceedings. Set up your confidential consultation today to get started.