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How will property division affect one's 401(k) savings?

Many Texas residents have worked for years to build significant retirement savings. Divorce can threaten that financial stability, and spouses who are unable to make wise property division choices risk losing a considerable amount of the money that has been set aside for retirement. An example lies in the manner in which 401(k) accounts are handled during the division of marital wealth. Without proper planning, a large portion of these funds can be lost to fees and taxes, and not put to use by either spouse.

Retirement savings are subject to property division in the same way as any other asset held within a marriage. When deciding how to divide the value of a 401(k,) spouses have a number of choices. They can cash out the plan and use the funds to pay the other spouse directly. It is also possible to give one spouse a portion of the funds by rolling that amount over into his or her own retirement plan. Or, spouses can negotiate a settlement in which one party retains the entire 401(k) while giving the other a greater share in other assets.

Each option will have a range of pros and cons, and some choices will come with heavy taxation or fees. The best way to make an informed decision is to speak with the plan administrator to learn more about how the value of the account can be distributed. He or she can provide sample copies of a qualified domestic relations order, or QDRO, which will provide information on the specific requirements of one's 401(k) plan.

Once Texas spouses have decided to proceed, it is important that the attorneys draft and agree upon a QDRO. This document must be signed by both the plan administrator and the family court judge before it goes into effect. This means that in the event that the spouse who holds the account retires or dies before this property division step has been taken, the other party could lose access to the 401(k) entirely.

Source: newsmax.com, "9 Tips for Dividing Your 401(k) During a Divorce", Jerry Shaw, April 27, 2015

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