No one ever plans for a divorce, but sometimes, you and your spouse find yourselves at the end of a relationship. Though this can be difficult to emotionally process, the financial implications are another matter entirely—especially when it comes to your retirement savings!
In a previous blog post, we discussed the differences between marital and non-marital assets and how these components affect divorce proceedings. For this topic, we’d like to focus on your 401(k) savings and what can happen to your hard-earned benefits when its falls under the category of marital asset.
What Happens to My 401(K) After a Divorce?
As with any marital asset, your 401(k) plan will be divided among you and your spouse during divorce proceedings. However, unlike the splitting of a property or a joint-checking account, you will still need to pay income tax on any amount that is withdrawn from the plan.
How Can I Protect My 401(K) Plan:
Court Order: Before any funds can be taken out of your retirement savings, you need a court to issue you a QDRO (qualified domestic relations order). This ensures two things: (1) you are not penalized with an early withdrawal fee of your 401(k) plan if you’re under the age of 59 ½, and (2) you and your spouse are legally entitled to a portion of the funds.
Experienced Attorney: According to CNBC News, having an experienced attorney is essential to protecting your retirement assets. From drafting the QDRO for court review and validation to ensuring a smooth transfer of funds to both parties, you’ll want to invest in a divorce attorney who specializes in this area, so assets are distributed correctly, and no mistakes are made throughout the process, causing you to lose more of your retirement nest egg.
New Beneficiary: Once your divorce is final, don’t forget to rename your 401(k)’s beneficiary. It’s likely you have your spouse listed as your beneficiary, which means if something were to happen to you, he or she would be entitled to your benefits.
Prenup Protection: In another previous blog post, we discussed the importance of having a prenup in place before walking down the aisle. Your 401(k) is another example of how a prenup can protect you. According to U.S. News, a prenup is essential to helping you protect your future investments. If you’re planning on tying the knot, meet with an attorney to help you draft a prenup that identifies your retirement savings as a non-marital property, in the event of a divorce.
How Can KTF Law Firm Help
Going through a divorce is challenging for everyone involved. However, ensuring your rights and assets are protected is essential to not only your future but also the future of your family. As experienced divorce attorneys in Minneapolis, we invite you to schedule a free consultation with our law firm, so we can hear your story, answer your question, and help you get the professional legal representation you deserve. Contact us today to learn more!