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How are 401(k)s divided in a divorce?

On Behalf of | Jan 23, 2025 | FAMILY LAW - Divorce

If you have worked for a number of years, your 401(k) likely makes up a significant portion of your assets. For some people, that can be hundreds of thousands of dollars.

If you and your spouse are planning to divorce, you’re probably wondering how much of your 401(k) you may lose.

How equitable distribution works in New York

In community property states, marital assets are generally split 50/50. However, New York follows the concept of equitable distribution, which means the division is based on what is just and reasonable for both spouses. Factors that are considered in the distribution include:

  • The duration of the marriage
  • The assets that each spouse brought into the marriage
  • The age and health of both spouses
  • Contributions made by each spouse, including homemaking, child care and career support
  • The future financial needs and circumstances of both spouses
  • The needs of the custodial parent

The principles of equitable distribution also apply to 401(k)s. That means taking into consideration any funds, along with their growth, that each spouse contributed to their 401(k) before the marriage. The court may also look to see if one spouse was the primary breadwinner and the other largely took care of the children and home and relied on the other’s income. In that situation, the dependent spouse may be awarded a more significant portion of the funds.

Options for handling a 401(k)

Some divorcing couples negotiate a settlement that allows one spouse to keep the full amount of the 401(k) while allowing the other spouse to keep other assets of comparable value, like the house and other investments.

If the couple decides to divide the 401(k), the court will provide the plan administrator a Qualified Domestic Relations Order (QDRO). This allows funds to be transferred and rolled over into another retirement account, such as an IRA, without incurring penalties for early withdrawal.

Before making any decisions regarding your 401(k), it’s essential to have experienced legal guidance to help you make the best choices.