The Law Offices of James A. Cuddy, LLC

Addressing a 401(k) during property division

The process of dividing marital wealth can be difficult, regardless of the type or volume of assets that a couple has amassed. Both spouses are aware that the outcome of the property division process will have a great deal of impact on their future financial lives, and both are eager to reach the most advantageous division of wealth. It is important for Connecticut spouses to remember that each property division decision has a set of pros and cons, and that each decision must be made with an eye toward the overall strategy.

Take, for example, the division of one spouse's 401(k) account. When addressing how to divide this particular asset, couples have a range of options. They can decide to liquidate the plan so that the asset can be divided equally, but this option will come with fees and taxes. They can decide to roll a portion of the plan over into the other spouse's retirement plan, which will help keep the investment relatively intact. Or, in some cases, the couple can negotiate a settlement in which one spouse retains the entire 401(k) account and cedes a greater portion of other assets to his or her spouse.

In all cases in which the 401(k) plan will be divided, it is necessary to prepare a qualified domestic relations order, or QDRO. This document, which is prepared by one's attorney, directs the plan administrator on how the account should be divided and where the funds are to be sent. A QDRO must be signed by the family court judge and the plan administrator before it goes into effect, and it is wise to have the QDRO approved and signed in the early stages of the divorce process.

For Connecticut spouses who are in the early stages of the divorce process, this is just one of many property division choices that could come into play. Spouses must approach the division of marital wealth in a holistic manner and make decisions that support their overall goal. There is no such thing as a one-size-fits-all solution regarding property division, and each couple should work to create a plan that suits their own unique needs.

Source: Newsmax, "9 Tips for Dividing Your 401(k) During a Divorce", Jerry Shaw, April 27, 2015

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