Avoid These Mistakes When Dividing 401(k) Assets During Divorce

We all work hard to prepare for retirement.  During a marriage, we spend years and sometimes even decades planning for our future and saving for retirement.  If you and your spouse are divorcing, you will have to make new plans for the future and readjust your view to envision your retirement without the financial assets of your spouse.  One of the more common retirement assets is a 401(k).  There are several common mistakes regarding your 401(k) that you need to avoid during your divorce.

One common mistake is believing that just because the 401(k) is through your spouse’s employment, that you have no claim to any part of the asset.  New Jersey is what is known as an “equitable distribution state.”  This means that during a divorce, the court will make an equitable distribution of all the marital assets.  Marital assets include the property and assets acquired by either spouse during the marriage, with a few limited exceptions.  The value of the 401(k) that accrued through your spouse’s employment during the marriage is marital property, and you are entitled to your equitable share, even if your name is not associated with the account.

Another common mistake is just cashing out the account in order to divide the contents during the divorce.  Doing this can incur unnecessary and harsh penalties and taxes.  Instead, your attorney should draft a Qualified Domestic Relations Order, or “QDRO.”  The QDRO is a special type of court order directing the financial institution to divide the 401(k) into two accounts, or sometimes will direct the institution to pay the proceeds out in a particular method.  Using a QDRO means that the money can remain invested and you can avoid paying fees.

Finally, be aware that it is not always necessary to split up the 401(k).  Although each spouse will receive his or her equitable share of marital assets during divorce, this does not mean that every asset must be literally divided.  Instead, you can offset the value of what you would receive from your spouse’s 401(k) with another asset.  For example, instead of dividing the $30,000 401(k) and receiving your share of $15,000, you can request that you receive an extra $15,000 from the equity in the marital residence, and allow your spouse to keep the 401(k) intact.

We have extensive experience assisting our clients in understanding asset division in divorce.  Call us today and let us help you.

Are you interested in seeking an annulment? If so, contact Williams Law Group, LLC right away. Our family law attorneys will review your case to determine if an annulment is an option. If it is, we will guide you through the process and ensure you make the best decisions for your future. Call our office at (908) 738-8512, email us atinfo@awilliamslawgroup.com, or contact us through our confidential online form to schedule a consultation

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