Long, Murphy & Zung, P.A.

Quick guide to dividing your 401(k) during divorce

As you go through your divorce, it is easy to let the emotions overwhelm you. Despite the emotional hardships, it is necessary to make sound financial decisions about dividing property. If you have large and valuable retirement plans such as a 401(k), you must ensure that you handle them properly with your future in mind.

This is also an important subject because you are entitled to part of any 401(k) that your spouse holds, unless a prenuptial agreement states otherwise. So, how do you divide these valuable and complex retirement assets? Here are some tips about dividing retirement accounts.

How to divide qualified assets

In the case of a 401(k), youprotect and guarantee division of qualified retirement plans without any penalties. The transactions following a QDRO are free of tax implications, as long as everything was reported correctly. The receiving spouse can accumulate his or her funds into a qualified plan or IRA. If you transfer the fund to an IRA, there will be a conversion tax.

Remember to update your beneficiaries should issue a Qualified Domestic Relations Order, or QDRO. This type of court order is often used for child support and alimony, but it is also used to 

Once you have either transferred or received 401(k) assets, consider modifying your beneficiary designations as soon as possible. Unless your divorce settlement requires for your ex-spouse to remain a beneficiary, you might want to make sure he or she is not listed. Updating your beneficiaries for all assets is crucial, including life insurance and annuities.

Dividing valuable assets is often stressful and complicated. Take note that the above information is only applicable to 401(k)s and other qualified plans. If you have an IRA or SEP, you do not need to issue a QDRO, although some attorneys may advise you to do so for tax purposes. No matter what retirement plans you are dealing with, you should consult a high-asset divorce attorney about your case.

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