A person who is going through a high asset divorce in Pennsylvania may wonder how their 401(k) will be affected. Because a 401(k) is considered part of the marital assets, it may be divided in a few different ways. Proceeds from one spouse's 401(k) could be transferred to the recipient spouse's retirement plan, or the recipient spouse might be given a cash payment in one lump sum.
Before a 401(k) can be divided as part of a divorce settlement, a qualified domestic relations order must be created. A judge must sign off on the QDRO, and the 401(k) plan's administrator must approve it before it is considered valid. The QDRO is a document that explains exactly how funds from a 401(k) should be divided after a divorce.
Some 401(k) plans will allow funds to be withdrawn after a divorce is finalized while others will not allow any withdrawals until retirement. This means that a divorced person may not end up receiving funds from their ex-spouse's 401(k) until their ex-spouse is retired. In some cases, funds that were contributed to a 401(k) prior to the date of marriage may be excluded from property division.
A divorce attorney may advise a person who is going through a high-asset divorce to refrain from funding their 401(k) as soon as they know that a divorce is imminent. An attorney may also be able to help a divorcing person to understand how specific state laws will affect the division of their retirement funds after their divorce is settled. Using this information, an individual may be in a better position to negotiate for the divorce settlement that works best for them.