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Dealing with a 401(k) in a divorce

On Behalf of | Jul 19, 2021 | Divorce Mediation |

You may feel prepared going into your divorce proceedings in California, yet there are almost certainly a few aspects that will likely catch you off-guard. One of these (according to feedback from our past clients here at Miller & Associates, Attorneys LLP) is the fact that your 401(k) is subject to property division.

You probably view your 401(k) as an individual asset (given that it exists due to your individual employment). However, the contributions made to that account during your marriage come from marital income (thus making them shared assets). Knowing this, your next question likely becomes how does the court deal with your 401(k) during property division.

The role of the QDRO

Past posts on this blog detailed the role of a Qualified Domestic Relations Order in divorce proceedings. With one issue, your 401(k) plan provider can then divide your account into two (with both you and your ex-spouse then assuming investment control over your respective accounts).

Can you keep your full 401(k)?

You may worry that dividing up your 401(k) might significantly impact your retirement plans (particularly if you are only a few years from retirement). This may lead you to wonder whether you might be able to retain your full 401(k) account. Per the 401(k) Help Center, this may be a possibility, but only if your ex-spouse relinquishes their interest in it. To do this, you will likely have to give up your stake in a marital asset of comparable value. After years (or even decades) of growth from investment returns and earned interest, your account may have a high value (hence your desire to retain it), requiring you to forego an equally valuable marital asset. This is just something to consider when making your decision.

You can find more information on complex property division issues such as this throughout our site.