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How asset division can affect a 401(k) account

For Pennsylvania couples planning to dissolve their marriage, preparing for how certain retirement accounts may be divided during the asset-division process of the divorce can be helpful. Many accounts may fall into the classification of marital property, thus subjecting their contents to equitable distribution.

A 401(k) retirement account may be subjected to this division, particularly in a high-asset divorce case. Dividing this particular asset requires a particular process, starting with a judge issuing an order known as a Qualified Domestic Relations Order. The QDRO must then be submitted to the administrator of the 401(k) account. In turn, the administrator is to notify the account's primary payee that the order was received and obtain within a mandated time frame verification that the order is valid.

In this way, the payee's ex-spouse becomes partial owner of the funds contained in the account. The ex-spouse may opt to withdraw his or her portion at once, yet doing so may be accompanied by a withdrawal penalty fee as well as taxes on the lump sum. Some ex-spouses in this situation leave the funds in the 401(k). This allows the ex-spouse's portion of the account to grow alongside and in proportion to the rest of the account.

The various ramifications associated with property division during a divorce can be difficult to understand let alone prepare for without the guidance of a divorce attorney. This is especially true for spouses in a high-asset divorce, who stand to suffer significant losses if their rights and interests are not represented during the divorce process. The chances of a fair or even favorable outcome may increase greatly on account of the attorney.

Source: 401k.org, "401(k) and Divorce", December 24, 2014

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