What Happens to My 401(k) in a Divorce?

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Couples in Colorado who are going through a divorce and have 401(k) accounts may be surprised to learn that their spouses may be entitled to a portion of the account balance. The portion of a 401(k) account accumulated during the marriage is considered marital property and is subject to equitable property division during divorce proceedings.

If you have questions about your 401(k) and cannot resolve these issues on your own, reach out for the assistance of a qualified Golden, Colorado, divorce lawyer. At The Drake Law Firm, P.C., one of our experienced divorce lawyers will discuss how to protect your 401(k) and any other financial considerations you should make during your divorce. Read on as we answer some questions you may have about what happens to your 401(k) in your divorce.

What Is Equitable Property Division?

Because Colorado is an equitable distribution state, property is divided “equitably” or “fairly” rather than “equally.” Property division occurs at permanent orders, which is usually the final hearing in your case. The Judge will consider several factors to determine how to “fairly” divide your assets and then decide who gets what.

Most importantly, Colorado courts are not permitted to consider “marital fault” when dividing assets. The term “marital fault” refers to acts that contributed to the divorce, such as having an affair, lying, or being abusive. While these factors may impact parenting, they are not permitted to be considered when dividing property.

How Are Retirement Accounts Divided?

Retirement assets are unique for many reasons. These assets are specifically relevant for those who are nearing or in retirement. One of the most common retirement plans private employers offer is the 401(k). When dividing a 401(k) plan during a divorce, the first step is determining whether the account is marital property. Any 401(k) funds accumulated during the marriage are considered marital property and divided fairly in a divorce.

First, these assets must be divided under special rules and using specialized orders and documents. Retirement accounts and assets are frequently strictly regulated under federal law. Pensions, 401(k) accounts, and other types of retirement assets are examples of these. These specialized orders, known as “Qualified Domestic Relations Orders” or “QDROs,” are used to transfer these accounts.

Second, the tax consequences of these assets are frequently “deferred.” In general, this means that the taxes are paid later, either when you make an early withdrawal or when you retire. Many attorneys attempt to balance the amount of each asset allotted to each spouse, which means that each person may receive real estate, cash, retirement accounts, and a portion of the marital debt.

Those contemplating divorce who own a 401(k) or whose spouse owns one may wish to consult a family law attorney regarding how the accounts should be divided.  Alternatively, an experienced family law attorney may be able to negotiate a viable way to avoid dividing your 401(k) altogether. How Does a QDRO Work?

Because a 401(k) is only in one spouse’s name, the other spouse will need a QDRO to receive their share of the 401(k) in the event of a divorce. Because the QDRO must adhere to both the plan’s requirements and the specific provisions of the Colorado divorce decree, the QDRO should be completed with extreme caution. Most plans are required to use specific language under the plan’s terms. The family court then issues the QDRO, outlining how the account will be divided.

After the Judge signs the QDRO and a certified copy of the signed QDRO is given to the plan provider, the 401(k) account is divided as ordered by the court. The plan provider typically creates a separate account for the recipient spouse and transfers the recipient spouse’s share of the plan to that account.

How Do I Protect My 401(k) in My Divorce?

To safeguard your 401(k) during a divorce, you’ll want to work with a reputable financial planner or organization. Unless a prenuptial agreement was signed by you, any funds you contribute to your account during the marriage are considered marital property and are subject to division during your divorce.

In a Colorado divorce, dividing retirement plans can entail a lot of paperwork. If you or your spouse own a 401(k) and are divorcing, you may benefit from consulting an experienced divorce attorney about dividing your assets.

Should I Stop Contributing to My 401(k) Before Filing for Divorce?

It is dependent upon your circumstances. Any marital asset that continues to grow in value, such as retirement accounts, real estate, and stocks, will be divided when the divorce is finalized. By deferring your contributions during the divorce, you reduce the amount that will be divided and increase the amount of money you have each month to spend.

What Happens If I Cash Out My 401(k) Before My Divorce?

Generally, it is best to wait until the divorce is finalized before cashing out your 401(k). Any withdrawals made pursuant to the terms of the divorce decree or settlement may be tax- and penalty-free. Only a financial adviser can advise you on what is appropriate for your circumstances.

The Drake Law Firm: Your “Divorce Lawyers Near Me”

If you’re looking for a “divorce lawyer near me,” you may be preparing for divorce and have questions about how the divorce will affect your 401(k) and other property. Having a trusted professional on your side during this time could mean the difference between giving away your retirement savings and keeping your nest egg safe.

The Drake Law Firm, P.C., a family law firm with offices in Golden and Colorado, is here to help you protect your financial interests and get through your divorce with as little stress as possible.

To schedule your consultation with an experienced divorce lawyer, call (303) 261-8111 today or fill out our online form here. For your convenience, we can consult over the phone or Zoom. We also offer Saturday consults by appointment.

Copyright© 2022. The Drake Law Firm, P.C. All rights reserved.

The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

The Drake Law Firm, P.C.
2117 Ford St.
Golden, CO  80401
(303) 261-8111


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