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Preserving a 401(k) through a divorce

Marital property is subject to asset division during divorce. It is not always easy to determine who gets what, especially when the total value of the asset includes time before, during and after a marriage.

A 401(k) plan can come into existence before a spouse does and can accumulate through and after divorce. Retirement plans have their own, sometimes-complex, distribution rules. State laws applicable to 401(k) accounts also differ.

How do divorcing spouses divide the retirement account fairly? Is there anything spouses can do to protect the 401(k) plan they have?

Some experts suggest a proactive approach. Couples who enter into a prenuptial agreement can designate who benefits from a 401(k) in the event of divorce. Through a premarital contract, spouses decide if a 401(k) and contributions to the plan remain separate property or get thrown in the asset pool of shared, marital property.

Couples at the other end of marriage also have 401(k) options. It is critical to understand the terms of the savings plan before making any moves during divorce. Experts recommend contacting retirement plan administrators and consulting with financial and legal counselors to be certain of the legal consequences of making 401(k) changes.

Many spouses get irritated when post-separation, voluntary contributions are included in marital property. It is possible to curtail contributions to a 401(k) plan to keep the asset from gaining value. State laws govern when that is permissible.

State laws also define how much of a 401(k) is shared property. If a 401(k) plan was in place before a spouse, the portion of funds that came before marriage might be considered separate property. A careful accounting of contribution dates and amounts will help tally the before-and-after marriage account value.

A legal advisor may suggest offering a spouse an asset other than, but equal to, a 401(k) to achieve a fair division of property. If spouses are unwilling to use that alternative, a court order can define the terms of the 401(k) split.

Source:, "Divorce Questions: How Do I Protect My 401k In A Divorce?" Emily W. McBurney, May 22, 2012

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