What Happens to Your 401(k) Plan During a Divorce?
In a Georgia divorce, all marital property must be divided equitably between the parties. Marital property is any property that was acquired by either party during the marriage, no matter in whose name it is titled. 401(k) plans and other retirement accounts, no matter which party owns them, can be subject to division by the court as marital property in a divorce proceeding.
Some assets may consist of both marital property and separate property, depending on the circumstances. For instance, one party’s 401(k) plan is property that must be divided during the divorce. However, if the spouse owned the 401(k) plan prior to the parties’ marriage, but continued to contribute to the plan during the marriage, it may constitute both separate property and marital property. Part of the 401(k) plan value may be separate property that belongs to one spouse and part of the plan value may be marital property that is subject to division during the divorce.
A 401(k) plan is a type of retirement plan that is known as a defined benefit plan, which means that its value is easily determined at any point in time. Although its value may change over time, increasing with contributions and earned interest and decreasing as the market fluctuates, it always has a fixed value. Therefore, even if part of the plan value consists of marital property and part of the value consists of separate property, it is possible to determine which portion of the 401K is marital property and subject to division in the divorce, and which portion of the 401K is separate (pre-marital) property, and is not subject to division in the divorce.
If the court decides to divide the value of a 401(k) plan between the parties in some manner, the money can be divided in a tax-free manner through the use of a Qualified Domestic Relations Order (QDRO). A QDRO is a written document that notifies a benefits plan administrator that the benefits of the plan are being divided between the two spouses, and how it is being divided. A QDRO is very specific about what portion of the plan is to be distributed to each spouse, as well as when and how the benefits should be paid to each spouse.
Typically, the spouse who owns the 401(k) plan can continue to contribute to the plan through his employer so long as he stays employed and otherwise eligible to do so. His future contributions will not affect the fixed value of the other spouse’s share of the benefits. However, the spouse who is awarded a portion of the plan’s value generally cannot immediately withdraw her portion, at least without paying significant state and federal penalties and taxes. This is unless, of course, the spouse has reached retirement age as specified by the plan and is free to withdraw the funds without penalty. Otherwise, the spouse can elect to directly roll over the plan proceeds to a regular IRA account in her name, where she can make contributions or simply allow the funds to accrue interest until she reaches retirement age.
Shaw Law Firm LLC has handled countless divorce cases involving significant marital assets, including 401(k) plans and other retirement plans. We know the ins and outs of property division under Georgia divorce law and we know what it takes to achieve our client’s goals. Contact us or call today to learn how Shaw Law can work with you to achieve the best outcome possible for you and your children.
Scott Shaw is founder and principle of Shaw Law Firm LLC, founded in 1995 and dedicated solely to divorce, family law and child custody matters that must be addressed and decided in the state of Georgia. Shaw Law Firm serves the greater Metro Atlanta area, particularly the counties of Fulton, Gwinnett, Cobb, Cherokee, Forsyth, Paulding, Henry, Fayette, Coweta, Newton, Walton, Bartow and Douglas. Schedule a consultation today at 770-594-8309.