Protecting What You Value Most

Handling a 401(k) during divorce proceedings

by | Jun 22, 2020 |

It is natural for people in Katy to make long-term plans with their lives. Two elements typically included in such planning are one’s marriage and their retirement. It goes without saying that a divorce impacts the former, but what about the latter? Other than removing a relationship one believed would continue during their retirement, many may think their divorces will not have a significant impact on that planned time of their lives (especially if they are still several years away from retiring).

That assumption is usually incorrect, given that the financial impact of a divorce may affect one’s retirement planning. The division of one’s 401(k) in particular will almost certainly do this.

Dealing with the division of a 401(k)

Family courts consider the contributions made to a 401(k) during a couple’s marriage to be marital assets. A non-contributing spouse has the option of rolling the portion of those contributions due to them into their own retirement savings account or to cash their portion out. Most might assume that they cannot take a disbursement now because such actions typically net an early withdrawal penalty. However, according to information shared by CNBC.com, one can make a withdrawal from a 401(k) during a divorce without incurring a penalty.

Trying to keep one’s entire 401(k)

The potential of an immediate infusion of cash may be difficult to convince one to forgo. However, per the 401(k) Help Center, if a 401(k) account holder wants to try to keep their full account in their divorce, they can if they can convince their ex-spouses to relinquish their claim to any 401(k) funds. Doing this will likely require that they agree to give up their stake in a marital asset of equal or comparable value.