What happens to 401K plan in the event of a divorce? In recent years, the rate of divorce for all married couples has more than doubled. Further, more than 25% of divorcing couples are more than 50 years old. That means that there is a higher percentage of people getting divorced older. And it’s the older people that have more developed 401K plans. Of course that’s a major concern for those considering divorce: they don’t want their soon-to-be ex-spouses getting their hands of those 401K funds!
What happens to my 401K plan if I get divorced?
When a couple gets divorced; especially a couple that has accumulated significant amounts of funds in retirement accounts, investments, life insurance and more, things get very complicated. When a human union is dissolved, all assets must be considered in the final divorce settlement agreement. And in most cases, any 401K funds accumulated during the union are considered as marital property.
It also happens to be true that dividing retirement funds, like 401K plans, is a legal nightmare. The rules are many, and also complicated to understand. There are loads of potential taxation implications to consider at the same time – check out the Suncorp superannuation calculator to help plan ahead & figure out how much you will actually have when you retire. A high percentage of attorneys have no expertise in this area, and therefore are prone to making serious negotiation mistakes. With all that in mind, it makes sense to get some education about what to keep in mind concerning your 401K if you are soon divorcing.
Most courts agree that retirement funds are planned for and contributed to by both members of a married couple. It doesn’t make a lot of sense that these funds would be thought of as belonging to one or the other, but not both. After all, the concept of marriage is all about joining together – and most judges are going to see your 401K monies joined together too.
Now, here’s the better news. If you entered into the marriage with a given amount already accumulated in your 401K, then that amount will probably be considered as separate property. Further, in some jurisdictions, any appreciation on that original amount would be looked upon as joint property. When it comes down to it, each case must be considered separately, and of course the variables can be very numerous. The exact differentiation between what is marital property and what is separate property will only be decided by the court.
The bottom line about 401K plans and divorce:
If you have accumulated funds in a 401K plan during your marriage, and are now about to get divorced, then prepare to part with some of that funding. Whatever amount has accumulated since your marriage began will most likely be seen in court as marital property. Pension disbursements, social security, life insurance, annuities and your 401K will all have to be considered, along with any other assets in question. Divorce is an ugly monster at times; one that can leave you feeling mighty broke too…