Dividing up a 401(k) during a divorce

Divorcing couples in Westerville go into their proceedings prepared to have to deal with a number of potentially sensitive issues; dividing up a 401(k) may not be one of them. The spouse contributing to the 401(k) (typically through their paycheck) often does not think such an account is a marital asset. Yet since the contributions made to a 401(k) during a marriage come from shared income, the court views them as such.

The contributing spouse may want to push to keep their 401(k), while the non-contributing spouse may want to use their portion to help them transition into their post-divorce life. These desires depend (of course) on what the law allows.

Cashing out a portion of a 401(k)

As to the question of whether one (or both) spouse can cash out their portion of a 401(k), many might automatically dismiss that as an option given that early withdrawals from a tax-deferred retirement account are typically discouraged (as doing so usually nets a 10% early withdrawal penalty). However, according to information shared by CNBC.com, a divorce is one of the few scenarios where one can make an early withdrawal from a 401(k) without incurring a penalty (whoever receives the disbursement must pay income taxes on the withdrawal, however).

Keeping the full 401(k)

One who wants to keep their full 401(k) can attempt to do so. The 401(k) Help Center says that by agreeing to relinquish their claim to another marital asset (of comparable value), one may be able to convince their ex-spouse to give up their interest in their 401(k). Doing this, however, might require that one give up more than they anticipated. This is because the court values 401(k) assets at their estimated future value (taking into account potential earned interest and investment gains).