Will Your Spouse Get Your 401(k) in a Divorce?
Divorce in Pennsylvania generally requires you to divide your marital assets, or the assets you and your spouse acquired during the marriage, fairly between the two of you. So what happens to a 401(k) in a divorce? This asset may also be divided under Pennsylvania’s “equitable distribution” policy, depending on whether it increased in value during the marriage.
How 401(k) Division Typically Works in a Divorce
Unless you and your spouse have a prenuptial agreement stating otherwise, any payments you made to a 401(k) during the marriage, along with its appreciated value, would be considered marital assets. This includes:
- Your contributions
- Your employer’s contributions
- Interest accrued
- Appreciation
The value of each of these would be subject to division in a divorce. Pennsylvania follows an equitable distribution policy, which aims to divide marital property fairly but not necessarily equally.
The value of this marital asset would be based on the date the divorce was filed or the date of the separation, if you both agree to use that date.
Solutions for Potentially Keeping Your 401(k)
Your 401(k) may be subject to property division in a divorce, but you may be able to implement a few strategies to protect it.
- Determine what other assets are available. Equitable distribution involves looking at the total value of your marital assets and dividing them fairly. You may not need to divide your 401(k) exactly in half.
- Assess the value of your spouse’s 401(k). If you and your spouse both have 401(k)s or other retirement plans of similar value, you might agree to walk away without dividing them.
- Consider buying out your spouse with other assets. If you want to keep the full value of your 401(k), you could “buy out” your spouse by allowing them to keep other assets of similar value in the divorce.
A divorce attorney can help you understand your options for protecting certain assets in a divorce while adhering to Pennsylvania’s property division laws. If you do end up dividing the 401(k), you will need a qualified domestic relations order (QDRO) to do so, which is a court order used to legally divide retirement plan assets.
The Importance of Clear, Detailed Divorce Agreements
Even if you and your spouse agree on your retirement account distribution plan, make sure to spell everything out clearly in your divorce agreement. This can prevent confusion or conflict down the line if one or both of you go against what you initially decided. A detailed agreement is especially important if you are not dividing the account evenly, as your written agreement can help you justify this decision if it comes into question later on.
Speak With an Attorney About Your Divorce Settlement Rights and Options
Will your spouse have a claim over your 401(k) in a divorce? They may have the right to claim a portion of its value. An experienced divorce attorney can help you understand the property division process and walk you through legal options for protecting your 401(k).
Contact Karen Ann Ulmer, P.C., today at (866) 349-4721 for a consultation.
