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Sharing a retirement account in a divorce

On Behalf of | Jun 26, 2020 | Property Division

If you and your spouse have chosen to end your marriage, you know that you will need to figure out how to separate your comingled lives.

Shared debts and assets may end up being split or apportioned to one person only during the divorce settlement negotiations. When it comes to one spouse’s 401K account, a couple may agree to share some of the value with the other spouse.

401K distributions and retirement

A 401K account’s purpose is to fund a person’s ultimate retirement, providing them an income stream after they have stopped working. As such, distributions generally must occur only after a person meets retirement criteria such as reaching a certain age. Distributions for any other reason may be subject not only to income tax but also to early withdrawal penalties. This may include distributions intended to satisfy a divorce decree and property division agreement.

The qualified domestic relations order

A qualified domestic relations order may allow a couple to access 401K funds to address their property division settlement without incurring early withdrawal fees. As explained by the United States Department of Labor, the QDRO allows the non-account owning spouse to be listed as a legal payee on a 401K account. With this in hand, distributions may be made directly to that person, bypassing the account owner entirely. The recipient may also avoid taxes at the time of distribution by reinvesting the funds into another retirement account.

More information about the division of assets in a divorce including 401K accounts or other retirement savings maybe found on the joint debt and asset sharing page of our Hawaii property division and divorce website.

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