How is a 401k divided in divorce?


Unless your marriage is very short, if you or your spouse have a 401k, it will likely be divided as part of your divorce. How does that work?

401ks are typically divided by what’s called a Qualified Domestic Relations Order (QDRO). These are documents that are typically drafted by an expert. They instruct the account administrator on how to divide the account consistent with the divorce judgment.

Once the QDRO expert drafts the document, it’s typically sent to the attorneys to ensure that it matches the parties’ intent. Once approved by the attorneys, the QDRO is then sent to the court for approval. After court approval, the document is finally sent to the account administrator for implementation.

The person who is receiving a portion of the other’s 401k typically has to identify an account into which their portion of the funds will go. If the person already has a qualifying open account, the funds can be transferred there. If not, they can simply open an account into which the money can be transferred.

If there are multiple 401k accounts to be divided, the parties can agree to allow the QDRO expert to do some math in order to minimize the number of QDROs necessary. For example, let’s say each party has a 401k account and the full balance of both accounts are included for division. One account has $100k and the other account has $50k. Instead of dividing both accounts, the parties can simply have one QDRO drafted shifting $25k from the larger account to the smaller one, which equalizes the total value of both accounts. This saves both time and money.

401k money is usually transferred tax and penalty free so long as it’s being done pursuant to a divorce and the proper documents are used—usually a QDRO.

How long does the whole process take?

Between the time necessary to apply for the QDRO, have the QDRO expert prepare it, getting court approval, and having it implemented, it typically takes a few months. We’ve had some done in 3 months, but others have taken 8 months or longer.

Because of the gap between the final divorce hearing and when the account is actually divided, as part of their divorce agreement, the parties should decide what they want to do with the gains and losses during that gap. Typically, they are shared by the parties. However, the parties can opt to agree on a certain dollar amount to be transferred instead.

Who pays for all of this?

Who pays for the QDRO is typically addressed in the parties’ divorce agreement. Parties usually share the cost, which is generally around $600 per QDRO for the QDRO expert. If there are multiple accounts being divided, the parties may need one QDRO per account. However, as mentioned above, the parties can sometimes use offsets to minimize the number of QDROs needed.

Also, in addition to the QDRO expert fees, the parties typically must pay legal fees to the attorney for coordinating and facilitating the QDRO process.

If you have any questions about 401k division or family law in general, feel free to contact us.

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