Dividing a 401k equally

For those in Battle Creek that are preparing for divorce proceedings, among the most pressing issues they must deal with is comprehending which of their assets will be subject to property division. Typically, one of the more valuable assets that divorcing couples share are the funds available through retirement savings accounts (such as a 401k). Some might question the use of the word "share" in this context given that most view a 401k as an individual asset one earns through his or her employment. Yet any assets accrued into a 401k during a marriage are indeed considered to be marital property

According to the 401K Help Center, equally dividing the marital funds in a 401k is typically one of the most common methods divorcing couples utilize when dealing with this asset. To do this, a couple must first obtain a Qualified Domestic Relations Order. This is a court order which entitles an alternate payee (other than the contributor) to a portion of the assets housed in a retirement account. With a QDRO, the one contributing to a 401k can stipulate that a disbursement be made to his or her ex-spouse in a single lump sum in the amount that he or she is entitled to. However, this could leave either spouse facing some severe tax penalties. 

A better method may be to create an entirely new account for the non-contributing spouse. This offers a number of advantages for both sides. Both may manage or invest the assets in their individual accounts as they wish. Plus, the Internal Revenue Service states that the non-contributing spouse can then roll over all of his or her funds into another investment or retirement account without facing any tax consequences. 

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