Even if its the best thing for the relationship, divorce is an incredibly hard thing to go through. From moving on to the economic repercussions, marital separation deals plenty of hurdles one needs to jump over. But what specifically happens to your 401k during a divorce? Let’s find out…
More Than Just A Decision
You might think that after a divorce, each party can simply cash out their 401k and gon their separate ways. However, it’s not that easy, unfortunately. If your spouse is involved with or listed on your 410k, you’ll need a judge to sign a Qualified Domestic Relations Order. This document states that both spouses have the right to get their part of the money. It also helps the holder of the account, as they can use it as evidence to only pay half taxes and fees when splitting the 401k. And this is just the beginning! How divorce will affect your 401k will vary greatly depending on where you live.
Depending On State Laws
Before filing any paperwork, it’s essential to look into state laws. Most states have different laws for asset division, and without that knowledge, you’ll be ill-prepared to defend yourself. For instance, some states allow a 401k account to be divided based on who contributed more – what most people find the fairest. Meanwhile, other states immediately split the accounts in half, regardless of contribution. Hey, at least that’s easier! Then, others still inspect the marriage, each partner’s income, and then divide the assets as seems best. So, take your time and do a little research! The whole process might be easier than you’re dreading.
Work On The Independent Agreement
In many states, the court allows the two spouses to come to an agreement on how to split the assets, instead of doing it. Of course, should you find yourself in this situation, you can try and do it on your own. However, as two people who are separating might find it a little difficult to agree, think about having an independent mediator. In fact, some financial advisors actually specialize in separation facilitation, helping both parties speed through the painful process and move on with their lives.
While a financial advisor can significantly help split assets fairly and quickly, they are not necessary. Of course, if you’re thinking about hiring one, make sure to do your research and go with an accredited advisor.
Sources: Finance101, SmartAsset.