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How will your 401(k) be divided in the divorce?

If you are facing divorce, you are probably not looking forward to the property division process. One of the items that may be concerning to you is your 401(k).

Tennessee is an equitable division state, which means that assets like your retirement accounts are subject to division that is as fair as possible, but not necessarily split down the middle.

Dividing your 401(k)

Many divorcing couples assume that most if not all the marital assets will be split down the middle, even in an equitable division state. Remember that your 401(k) is just one part of the whole and a 50-50 split may not be the best option. With the help of your attorney, you must create a Qualified Domestic Relations Order, or QDRO, a legal document that shows how to divide your account.

Considering another option

Another option is to use an offsetting balance approach. For example, if you and your spouse both have 401(k) and IRA accounts, you could transfer a portion of the IRA to offset the balance of funds in the 401(k). When you transfer an IRA, you do not need a QDRO, which can save money in fees. To make the transfer, you will only need a letter of authorization, an IRA distribution form and your divorce decree.

Withdrawing from your 401(k)

Because dividing a 401(k) is a complex undertaking, you might consider withdrawing funds from the account if you need cash. If you withdraw the proceeds as per the divorce decree using a QDRO, you may be able to avoid the penalty for early withdrawal.

Sorting through ideas

There is probably no perfect solution for dividing your 401(k), but once you understand the options, it will be much easier to make a decision. Besides, you and your spouse probably have more to think about than 401(k)s and IRAs. There may be other retirement accounts, investment accounts and pensions to consider in the process of property division.

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The Law Office of Robert M. Asbury
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