Divorce can be a stressful process emotionally, but one of the most difficult aspects is the complex process of dividing up assets, especially if you have become financially intertwined over the years.
In this light, the process of splitting up your 401(k) plan is not simple either. This blog will offer a brief overview into how 401(k) plans are usually divided during a divorce, and the process that you must go through.
Getting a court order
Unfortunately, 401(k) plans are not spit up informally. In other words, it is not possible to divide them over a verbal or other type of informal agreement. A court order must be pursued to sign off on a Qualified Domestic Relations Order. This order confirms the right of each spouse to receive a portion of the money.
Division rules are dictated by the state
Each state has different laws. Indianapolis is not a community law state; therefore, the 401(k) plan is not necessarily a 50/50 split by default. The court will take into account the financial situation of each spouse, and the abilities of each spouse to earn an income in the foreseeable future.
Options of distribution
There are three basic distribution options. You can roll the assets to your own qualified distribution plan, take the option to defer the distribution plan, or alternatively, cash out your portion as well.
It’s always best and simplest to try to come to a mutual agreement about the best way to split up your 401(k) plan. An Indianapolis divorce lawyer can help you in navigating this process.
Source: Smart Asset, “4 Things to Know About Splitting up a 401(k) in a Divorce,” Rebecca Lake, accessed Aug. 18, 2017