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Why is your 401k considered marital property?

On Behalf of | May 6, 2019 | Firm News, Property Division |

You may go into your divorce proceedings feeling fairly comfortable that you understand exactly what properties you and your soon-to-be ex-spouse shared. Yet like many others in Marion who are in your same position, you may be shocked to learn that your workplace retirement accounts (such as your 401k) are also considered to be marital property. If the funds in such an account are there solely due to your own individual efforts, whey then would your ex-spouse be entitled to them? 

Consider the source of those funds. Any income that you earn while married is considered shared. Given that contributions to your 401k are taken from your earnings, it is reasonable to expect that those contributions would also be deemed to be marital property. Even in cases where your employer offers matching funds to your 401k, these are considered to be benefits of employment, which your spouse would also normally share in. 

One common misconception about 401k division during divorce is that your ex-spouse is entitled to half of its entire amount. In reality, they are only entitled to half of the value of the contributions made during your marriage. That number will be determined and then a qualified domestic relations order will be issued to authorize your plan administrator to payout to an alternate payee (in this case, your ex-spouse). 

If you want to avoid the potential hassle that can come with splitting up your 401k in your divorce, the 401k Help Center offers a potential solution: relinquish your claim over another piece of marital property in exchange for your ex-spouse doing the same with your 401k. Of course, the trade-off must be equitable, or you risk the chance of the court not accepting it.