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Can the 401(K) or Other Retirement Account You Had Before Marriage Be Considered in Your Divorce?

In the State of Georgia, in a divorce, the assets of the marriage are equitably divided.  This also means is that assets not of the marriage (or non-marital assets) are not divided and remain the property of the spouse who brought the asset into the marriage.  Among these assets, 401(k) accounts and other retirement accounts are often the largest and most important.  A common complication is what happens if part of the 401(k) or other retirement account was earned prior to marriage?  Let’s take a closer look.

Marital and Non-Marital Assets

When dividing up assets in a Georgia divorce in what is called equitable distribution, the assets of the spouses are divided into marital property and non-marital property categories.  A property is non-marital if it was owned prior to marriage, gifted, or inherited.  A spouse who wants to claim an asset as non-marital has the burden of proof to prove to the court by pre-ponderance of evidence that the asset was theirs prior to marriage, or was gifted to them, or was inherited.  This is usually done through documentary evidence, and it can be done by testimony. 

What makes things more difficult when it comes to 401(k) or other retirement accounts is that an asset can also be partially non-marital and partially marital.  And complicating things even further, under Georgia law the appreciation or return on the non-marital portion of the 401(k) or other retirement account remains non-marital.  And this can be a big deal.

Partially Marital and Partially Non-Marital Assets Using Source of Funds Rule

For example, what if you owned a 401(K) prior to marriage that was worth $100,000 10 years ago.  After marriage you continued to make contributions to the 401(k).  The total balance is now $400,000.  Should your spouse have an equal share in the $300,000 that your 401(k) grew since the date of marriage?  That is the easy answer, and that is where most attorneys and judges leave it because it is easy.  However, under the law, that original $100,000 that you owned prior to marriage (using the source-of-funds rule) is entitled to return on investment.  That return on investment may be very substantial.  

If your 401(k) grows at just 10% per year, over 10 years, that original $100,000 you owned prior to marriage has grown (with no input from your spouse) to $259,374 — simply by keeping it in the account.  So why should your spouse have any marital interest in this $159,374 in appreciation of your non-marital portion of the 401(k) when he or she had absolutely nothing to do with it?  Under the law of Georgia in a divorce, if you can make the proper proof, the answer is that your spouse has no interest at all in the first $259,374 of your 401(k).  The proper use of the source-of-funds rule makes $259,374 of your 401(k)  a non-marital, pre-marital asset that you get to keep.  The only part of your 401(k) that will be shared with your spouse then is the remainder of the account or $400,000-$259,374 = $140,000, and the spouse gets half of this, or $70,000. 

Conclusion – Pre-Marital Value

The proper use of the law and proof to apply the law for pre-marital contributions to your 401(k) using the source-of-funds rule can be worth a lot of money in a divorce in Georgia. 

Family law is all we do at Shaw Law Firm, including fighting for equitable division of marital assets.

Give us a call, and we will be happy to discuss the source-of-funds rule with you, as well as any other family law, child custody, legitimation and paternity, and divorce issue.