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What could happen to your 401(k) during divorce?

As part of your employment, you may have received the benefit of having a 401(k) retirement account. You may have found this benefit comforting as you invested money in your financial security during retirement. However, because you now face divorce, you may wonder what will happen to this account during asset division proceedings.

If you created a prenuptial agreement, you may have taken steps to protect your retirement funds. Of course, not everyone chooses to or remembers to address these assets in such a document, and as a result, you may not have a clear idea of how to divide your 401(k). Because they have certain specifications, dividing these accounts can sometimes prove complicated.

State law

You may first want to find out more information on state property division laws. Because Pennsylvania follows equitable distribution laws, the court will look at your particular circumstances and determine what division will lead to the most fair -- but not necessarily equal -- outcomes. As a result, you could end up with more than half or less than half of the funds in your 401(k), depending on the factors taken into consideration.

Qualified Domestic Relations Order

Before a retirement account's division, a specific court order must go into effect. A Qualified Domestic Relations Order allows for the division of your 401(k) by superseding stipulations that protect your retirement funds from going to outside parties. Additionally, the QDRO protects you from taxes and other penalties that would otherwise come about for withdrawing funds early. The completion of a new QDRO must take place for each 401(k), pension plan or other similar accounts involved in the asset division proceedings.

You may wish to understand that individual retirement accounts require a transfer incident rather than a QDRO.

Coming to terms

If you and your ex-spouse would like to avoid having court involvement in this division, you may wish to attempt to come to terms on your own. This action may help save time and unnecessary conflict and allow for you both to feel comfortable with the outcomes. Of course, coming to terms would require that you and your ex work together, and if you cannot do so successfully, a court judgement may need to occur.

Dividing 401(k) accounts can turn complicated. Therefore, you may wish to learn more about how you could potentially protect your funds and how to obtain any funds awarded to you during property division proceedings.

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