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How do you divide a 401(k) in a divorce?

On Behalf of | Dec 31, 2020 | blog, divorce

If you’re thinking about getting married in Florida, you may want to sign a prenup first. If you don’t, most of your assets will be up for grabs if you get divorced. This includes your 401(k), even if it only has your name on it, and you’ve been saving up for decades.

How will your 401(k) be divided during a divorce?

Dividing a 401(k) during a divorce can be challenging because you have several different options. Some couples choose to divide their 401(k) in half. This sounds easy enough, but you’ll have to determine how to distribute the assets according to the plan’s stipulations.

You could also liquidate your 401(k) and give half of it to your former spouse. This ensures an equal division of funds, but you’ll also have to cash in your 401(k) before retirement, which can lead to fines and penalties. You’ll also have to deal with potential tax issues.

If you’re over the age of 59½, you could move your 401(k) funds to an IRA to gain more control over your funds. You can also avoid fines, tax penalties and everything else that comes with liquidating a 401(k). If possible, you could also offer your spouse a different asset that’s equal in value to your 401(k). However, this can be challenging since 401(k) accounts grow in value over time.

What’s the best solution for you?

Ultimately, no one solution works for every single divorce. You’ll need to work with an attorney to figure out what’s best for you. You may not be able to keep all your assets, but a lawyer could help you walk away from a divorce without losing most of your finances. You may find it easier to rebuild after the divorce is finalized.