Hopefully, your 401k is set to deliver you a nice little nest egg once you reach retirement. However, if income has been placed in that account during your marriage, that makes it a marital asset, and thus subject to property division should you choose to divorce. The question is how should you and your soon-to-be ex-spouse divide it up?
The website 401HelpCenter.com lists four common solutions that others in the past have relied on. These include:
- Liquidating your ex-spouse's portion of your 401k: While this immediately resolves the issue of equitable division, it is viewed by many as the least attractive option due to the fact that pulling from your 401k prior to you being eligible for distribution can result in significant tax penalties.
- Rolling your ex-spouse's portion into an IRA: Again, this allows you to immediately address the division issue, plus it may be easier to sell to your ex-spouse because it offers him or her more control over his or her portion. There are also no fees or penalties associated with it. However, it only is an option if you are over the age of 59.
- Offer your ex-spouse additional assets in exchange for the full value of your 401k: This lets you retain complete ownership of your account, but may require you to give up other coveted assets.
- Split the value of your 401k evenly: You can ask for a Qualified Domestic Relations Order that lists your ex-spouse as an alternate payee on your account. This allows you to split your 401k into two accounts, with you continuing to contribute to both while each of you manage your respective account's assets.
Before making the decision on how to divide your 401k, it may be wise to first solicit the advice of your plan administrator.