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Defining how your 401(k) fits into your divorce

Many of the Rockville clients that we on the team here at Steven J. Gaba have worked with in the past come into their divorce proceedings convinced that they know exactly which of their assets their soon-to-be ex-spouses cannot touch. Many are unpleasantly surprised to learn that several of those they view as being separate assets are actually subject to property division. The asset that typically causes the most shock is a 401(k). You work very hard to earn assets to allocate to your 401(k) account without contributions from your spouse. Why then would it be considered marital property? 

The reason behind this is the same that designates your earned income as a marital asset. Because you earned those assets while married, they are viewed as marital property. Thus, any funds put into your 401(k) (along with any interest or earnings generated by it) during your marriage are shared between you and your spouse. Now, if you were already contributing to your 401(k) prior to your marriage, those funds posted to it (and again, any interest or earnings) before you were wed are indeed separate property. 

So how are you to divide your 401(k) equitably? The 401k Help Center offers a couple of suggestions. You may ask for a Qualified Domestic Relations Order that allows your spouse (as an alternate payee) to receive a portion of your account. You can then split the amount of your 401(k) included in your divorce agreement into two separate accounts (one of which will then be yours alone). Or, if you prefer, you can negotiate to retain the full value of your 401(k) in exchange for relinquishing your ownership in a marital asset of equal value. 

You can learn more about your options when dividing your marital property by continuing to explore our site. 

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