401(k) Considerations During Divorce
Aside from a house, most people’s 401(k) retirement plan is the most significant asset they own. What happens to the 401(k) during the divorce process?
Who gets the 401(k)?
401(k) are owned individually, not jointly. Your spouse can be named as a beneficiary, but you are the sole owner—and the same goes for their retirement account. When you divorce, your 401(k)s may be divided, even though you’re an individual owner.
In mediation, you can come to whichever agreement makes sense to you both. For example, if your spouse put their career on hold to take care of your children, you might split your 401(k) in half to make up for that financial loss. On the other hand, if you’ve both got roughly equal retirement savings, or there are other assets you’d prefer to divide, you may decide to simply keep your individual accounts and remove your spouse as a beneficiary.
Generally, if spouses will divide a 401(k), they’ll need to decide whether they want to roll over their share of the account into their own retirement plan. This is typically a tax-free transaction and can save a lot of money.
On the other hand, if you take some or all of the money as cash, you’ll need to pay income tax on that amount. It’s always wise to consult a financial planner and tax professional before divvying up your assets.
How you and your spouse decide to handle your 401(k) accounts is up to you. However, you may benefit from considering your options before you begin mediation, especially if you have an amicable relationship. If you’re unable to come to an agreement, even after mediation, you’ll need to address the issue in court.
To learn more, call the experienced Long Island divorce mediators at Solutions Divorce Mediation today.