Many of those preparing for divorce proceedings in Connecticut may feel as though they know what to expect. Yet most people report that learning that one’s 401(k) is subject to property division comes as a surprise. While most believe such accounts are individual assets, the contributions made to it come from marital income (thus making them marital assets).
Those spouses contributing to a 401(k) might worry how dividing them will impact their retirement plans; non-contributing spouses may want to know whether cashing the portion owed to them is a possibility (in order to provide them with a needed infusion of funds). Knowing what to expect going into property division proceedings may help one plan a strategy most advantageous to them.
Keeping the full 401(k)
A 401(k) account holder may want to try and retain their full account in their divorce. According to the 401(k) Help Center, that is a possibility, yet to do it, one will have to convince their ex-spouse to relinquish their claim to those assets. For that to happen, they will likely have to give up their interest in another marital asset of comparable value. The court determines that value to be the potential future value of those assets (after having grown through investment returns and earned interest).
Taking money from a 401(k) early
One wanting to cash out a portion of a 401(k) prior to reaching the age of retirement will normally net an early withdrawal penalty. Yet information shared by the website SmartAsset.com reveals that divorce is one of the few cases where early withdrawals will not result in penalties. One who does take such a disbursement, however, will have to pay income taxes on the amount withdrawn.