What happens if both spouses have a 401(k) in divorce?

On Behalf of | Jul 21, 2022 | Family Law |

The fate of your retirement account is bound to be a major concern in your divorce. Courts generally look at retirement money accumulated during marriage as marital property. This means spouses usually have to divide a 401(k) or an IRA between them. However, you and your spouse may possess your own 401(k) accounts.

In the event each spouse owns their own retirement account, different outcomes may result. CNBC explains three possible scenarios that you could deal with.

You keep your account intact

The fact that you and your wife or husband possess your own 401(k) and/or IRA show that both of you have built up retirement funds in your own accounts. Therefore, a judge might find it unnecessary to split up an account between the two of you. Therefore, you will exit divorce with your account untouched.

Your court divides your account

A court may still insist on division of an account if one spouse has a lopsided amount of money. Certain methods of division will come into play depending on the accounts. If you have a 401(k) with a large amount of money, you will need to use a Qualified Domestic Relations Order to yield proceeds to your spouse if you have the bigger account. Meanwhile, your divorce settlement may be enough to divide your IRA if you own one.

You negotiate for your full account

If you want to avoid accessing your retirement accounts, you might trade other assets to your spouse in exchange for keeping your 401(k) or IRA intact. Basically, you will compensate your spouse for the amount your spouse would receive from your retirement account through other kinds of property.

Be aware of your tax obligations under law if you have to divide an account. Otherwise, you may end up losing money unnecessarily. You need every advantage you can get to arrive on the other side of divorce with as many assets as possible.