Splitting 401(k) funds for a divorce

On Behalf of | Mar 13, 2018 | Divorce, Firm News |

One of the issues divorcing couples in Kentucky may have to address is the separation of the assets, including retirement money. Couples should take care with how they divide their retirement accounts, such as 401(k) funds, as the different types of retirement accounts are governed by different rules. Dividing the money the wrong way can result in one ex-spouse receiving a bigger portion of the funds than the account holder wanted. It can also result in the parties having to pay high penalties and a large tax bill.

Traditional pension plans and 401(k) plans can only be legally divided with a qualified domestic relations order. For ex-spouses who are entitled to a portion of the workplace retirement plan paid into by their former spouse, the QDRO is what is needed for them to legally obtain their share.

While its contents are based on those in a divorce agreement, a QDRO is a completely separate document. Before individuals file the document with the court, they should have their attorney carefully review it to ensure that it adheres to what is stipulated in the decree. One QDRO document will have be completed for each retirement account.

The QDRO will have to specify if the 401(k) funds are to be moved to a rollover IRA or if they are to be distributed directly to the receiving ex-spouse. After order has been filed with the court, the administrator of the 401(k) will have to approve it before the money will be moved.

A family law attorney may litigate to ensure that a client has the financial resources necessary to be financially stable after the end of their marriage. The attorney may work to ensure that the proper procedure is followed for the dividing of certain assets, including retirement accounts and real estate.