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A 401(K) is not always split down the middle in a divorce

by | Sep 26, 2018 | Property And Asset Division

New York is an equitable division state, which means that in a divorce, assets are not necessarily split 50-50. The judge will decide on a division that is deemed fair for both parties.

Retirement accounts are always among the more important assets, and a 401(k) is among the most common retirement account. You will sign a QDRO to show how this account will be divided.

The QDRO defined

The QDRO, or Qualified Domestic Relations Order, is a judgment or order in a divorce proceeding that directs how a 401(k) or another retirement account is to be divided. The funds may be used to pay child support or alimony, or for another similar purpose. In an equitable division state like New York, the court will decide what is equitable.

Seeking the best results

Some lawyers will pass off the QDRO responsibility for a client. However, an attorney who is qualified to manage the QDRO process for all types of retirement accounts, including a 401(k), will be able to provide guidance on a course of action that will bring about the most beneficial results in the property division phase of the divorce. For example, let us say that a divorcing couple has a home valued at $300,000 that has been paid off and the husband has $325,000 in a 401(k). The husband is willing to give the home to the wife in return for keeping the retirement account, which appears to have the greater value. However, when taxes and any potential penalties are figured into the equation, keeping the retirement account may have its downside.

Working together

Keep in mind that a neutral party will also enter the picture with respect to distribution. The law requires that the plan administrator for the 401(k) facilitates the rollover or transfer of this type of account within a reasonable length of time. When you consider how professionals work together so that assets like retirement accounts can be properly distributed, you can have faith that your financial future is in good hands and that the court will apply equitable division correctly in your divorce proceeding.