You can cash out your portion of the balance as well. If you decide to wait, you could either choose to take regular payments or get a lump sum. If you leave the money in the plan, you’ll have to begin taking required minimum distributions (RMDs) starting at age 70.5 to avoid a penalty. This allows you to avoid having to pay a penalty on the money.Īnother option is to defer taking a distribution until the account owner retires. The first option is to roll the assets over into your own qualified retirement plan by requesting a direct transfer. Spouses on the receiving end of a 401(k) distribution after a divorce have three basic options for getting the money. There are some exceptions, including sometimes (but not always) when a prenuptial agreement is in place. In that case, each of you would usually be entitled to half of the money held in a 401(k). In a community property state, on the other hand, any assets gained during the marriage are considered to be owned jointly by both spouses, regardless of who was actually responsible for securing them. That doesn’t mean, however, that it’s an automatic 50-50 split. In equitable distribution states, the court looks at factors like each spouse’s financial situation, ability to earn income and the length of the marriage in order to divide a couple’s assets in a manner that’s fair to both parties. States have different laws regarding the treatment of property acquired prior to and during a marriage. Things are different in California than in Texas or North Carolina, so knowing relevant state law is key. You won’t need a QDRO to divvy up an IRA but there’s a separate process called “transfer incident to divorce” that’s required to split the assets. The order must spell out exactly how much (the dollar amount or percentage) the receiving spouse is getting. If you’ve also got a pension or another type of employer-sponsored plan, your spouse will need to get a separate order for each of these accounts. This order is also important for the party that owns the account since it would let you off the hook from having to pay taxes or an early withdrawal penalty on a distribution from the plan. First, a judge has to sign off on a Qualified Domestic Relations Order, which confirms each spouse’s right to a portion of the money. Pulling money out of a 401(k) to finalize your divorce isn’t something you can do on a whim. You Need a Court Order to Divide a 401(k)
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