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How do courts divide up a 401(k) in a divorce?

On Behalf of | Jul 28, 2022 | Family Law | 0 comments

Marital property division is often a complex topic that few people in Florida may feel prepared for when entering into divorce proceedings. Throw in the potential of dividing up retirement assets, and many might view it as even more complicated.

For many people, their 401(k) ranks among the primary of these assets. Some might question why family courts view a 401(k) as a marital asset. Yet the court does not view the entire fund itself as marital property, but rather those contributions made during a marriage. The question then inevitably becomes how the court divides this asset.

Splitting up a 401(k) fund

In most cases, the court issues a Qualified Domestic Relations Order. This order authorizes a 401(k) plan provider to pay out to alternate payees. The provider can then split the account into two new funds. Both parties to the divorce then assume control of their respective accounts.

Is it possible to retain the full 401(k)?

Those contributing to a 401(k) may worry that dividing it up in their divorce might have a significant impact on their future retirement. Thus, they may seek a way to keep their full 401(k). According to the 401(k) Help Center, this may be possible, yet not without costs.

To retain the full 401(k), the contributing spouse must convince their soon-to-be ex-spouse to forego their interest in it. This requires that they relinquish their stake in another marital asset of comparable value in return. Before committing to this action, one should consider the short-term costs. The court values a 401(k) at its potential future value (after years of potential growth from investment returns and earned interest). This may require that one give up their interest in a significantly valuable asset right now in exchange for the benefit of continuing to grow their retirement funds over time.