When a couple makes the decision to end their marriage, there are a number of steps that must be taken. If the couple has children, then issues of custody need to be addressed, and so does the matter of child support. In all cases, couples need to go through the steps of dividing their marital property equitably or in adherence to a prenuptial agreement. One of the more intricate processes involved in this equitable distribution involves splitting a 401(k) retirement account.

A 401(k) is a specific type of employer-sponsored retirement savings plan. It provides an employee with the ability to set aside a percentage of their wages before taxes are deducted in a special account, and the funds held are not taxed until they are withdrawn. Many employers offer a matching program as a benefit, depositing a certain amount for every dollar that the employee saves in the account. Though the funds in a 401(k) account are saved and deposited in a single person’s name, if they were earned during the course of the marriage then they are a marital asset that needs to be divided in the same way that a home or other possession does. Unfortunately, that is more easily said than done and requires the involvement of the 401(k) plan’s administrator.

The 401(k) division is a multistep process that begins with the divorce decree and another legal document called a qualified domestic relations order. Upon receipt of these two documents, the plan’s administrator follows federal laws by which the other spouse’s funds are dispersed. There are generally three options available, including rolling the funds into another retirement plan, leaving the shares intact until such time as the owner spouse retires, or taking the distribution in cash. The last option would incur a 10 percent penalty unless the spouse receiving the distribution is over 59 ½ years old. The income would also be taxed.

The other option for splitting a 401(k) is to use its value as an offset against other marital property. To learn about which option would be best for your financial needs, contact the attorneys at Reinherz Law to set up a consultation with one of our compassionate attorneys.