As you enter into your divorce proceedings in Lexington, one asset that you will want to prepare for when dealing with property division is your 401k. Many often ask us here at Kajko, Weisman & Colasanti, LLP why their 401k's are considered marital assets when such account are funded through their individual employment efforts. We remind them that the income they earn from their jobs during their marriage is considered a marital asset, and given that a 401k is funded largely by one's income, it too falls under the same category. This brings us to the next important topic: how is it too be divided?
In most cases, the court hearing your case will issue a Qualified Domestic Relations Order. A QDRO authorizes a retirement plan administrator to make payouts from an account to an alternate payee. In the case of a divorce, the alternate payee is your ex-spouse. They can choose to do one of two things with their share of the money: roll it into their onw retirement savings account, or withdraw it now. Typically, withdrawals made from a retirement account made before one reaches the age of retirement are subject to a hefty tax penalty. Divorce, however, is one of the rare cases where such a penalty does not apply (one will have to pay income tax on the amount they withdraw).
Your ex-spouse is only entitled to a portion of whatever funds were contributed to your 401k during your marriage. Per the 401k Help Center, you could potentially retain the full value of your 401 in your divorce. Doing so would likely require you to relinquish your claim over a portion of another marital asset.
More information on dividing up a 401k in a divorce can be found here on our site.