Dealing with a 401(k) during divorce proceedings
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Dealing with a 401(k) during divorce proceedings

| Mar 1, 2021 | Firm News

Divorce cases in Minnesota present a number of different complexities to those working their way through them. Among the most challenging aspects of the process is the division of marital assets. Retirement accounts (such as a 401(k) account) rank among these. Many question why their 401(k) would be subject to property division. Given that the contributions made to such a fund during a marriage come from marital income, the court considers them to be marital assets.

Knowing this, all parties with an interest in a 401(k)’s division will want to know what their options are in regards to those funds.

Keeping the full amount

The 401(k) account holder may have concerns over how dividing up those assets may impact their retirement plans (as they may plan on their 401(k) assets providing a primary source of income during their retirement years). It will likely then please those worried about this to know that (according to the 401(k) Help Center) they may indeed keep the full amount of their accounts. To do so, they likely will have to relinquish their interest in another marital asset of comparable value in exchange for their ex-spouse giving up their claim to a portion of the 401(k).

Cashing out

While family courts typically mandate the equitable division of 401(k) assets, those looking for an immediate infusion of funds following the completion of their divorce proceedings may look to a 401(k) disbursement to provide it. Typically taking an early withdrawal from a tax-deferred retirement savings account like a 401(k) nets an early withdrawal penalty. However, per the website SmartAsset.com, divorce is one of the few cases where the law permits a withdrawal without penalty (though one will have to pay income tax on the disbursement).