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Dividing up retirement assets in a divorce

February 23, 2021 | Firm News

Previous posts on this blog touched upon the fact that certain retirement assets may be subject to property division during divorce proceedings. More specifically, family courts in Colorado view any contributions made to a retirement account during a marriage (given that they come from marital income) as marital assets.

For most, this will impact contributions to one’s 401(k). Having to divide up a 401(k) may significantly impact one’s retirement plans. Thus, those set to lose a portion of their account in their divorce will certainly want to know what their options are (if any).

Splitting up 401(k) contributions

In a typical divorce case, the court issues a Qualified Domestic Relations Order that authorizes a 401(k) plan provider to make a disbursement to an alternate payee (in this case, the non-contributing spouse). This paves the way for the dividing of the funds subject to division. Yet if either side set to receive funds from a 401(k) wishes, they can cash out the portion of funds due to them. Typically this would result in an early withdrawal penalty. However, according to the website SmartAsset.com, divorce is one of the few cases where such an action would not net a penalty (one who chooses to do this, however, will have to pay income tax on the disbursement).

Fighting to keep one’s full 401(k)

Should the 401(k) account holder chooses, they can attempt to keep the full amount of their fund. Per the 401(k) Help Center, to do this, they need to convince their ex-spouse to forego their portion of the contributions. That will likely require that one agree to relinquish their claim to another marital asset of equal value.

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