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Divvying up the 401k during a divorce

Many in Los Angeles enjoy the security that comes from knowing that, after many years of having worked in their individual professions, the funds accumulated in their 401k accounts are there to fall back on. Most might view a 401k as an individual's asset, which is why it seems so shocking to many that all (or at least a portion of) the funds from such accounts are typically eligible for equitable distribution during divorce proccedings

Perhaps this should not come as such a surprise; after all, the law does state that any assets gained during a marriage are subject to property division. Individual contributions as well as employer-matched donations made to a 401k account during one's marriage fall into this category. The question then becomes how is a 401k split during property division proceedings? 

The non-contributing spouse is typically entitled to half of any contributions made to a 401k during a marriage. This might prompt the contributing spouse to attempt to drain the funds (either through a loan or a withdrawal) from such an account so that his or her soon-to-be ex-spouse cannot get to them. Yet information shared by the Huffington Post points out that many 401k plan providers place restrictions regarding who can access funds (such as requiring spousal approval of all early disbursements). 

Draining one's 401k may also be end up being costly, as early withdrawals can result in stiff tax penalties. The 401k Help Center suggests alternatives to withdrawals, such as seeking a Qualified Domestic Relations Order in order to split one 401k into two separate accounts (one that each spouse can then manage). Another common recommendation is for the contributing spouse to relinquish his or her claim to ownership of another marital asset in order to retain the full value of the 401k. 

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