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Splitting a 401(k)? Here's what you need to know

Divorces are difficult for everyone involved, and there are always assets that have to be divided or discussed. When you get a divorce, one of the things you might have to manage and divide is your 401(k). To divide a 401(k), you will need to have a court order. A judge will have to sign off on this with a Qualified Domestic Relations Order, which will give each spouse part of the money from the account. The person who owns the account won't have to pay penalties or taxes as long as this order is in place before the funds are withdrawn.

What should you do about other kinds of retirement plans?

If you have a pension and other kinds of retirement or employer-sponsored plans, make sure the judge knows. Each plan requires its own special order, because the percentage of the account going to each spouse has to be specified before the withdrawal is made. The only time you don't need a QDRO is if you are splitting an individual retirement account. Instead, an IRA is split with a transfer incident to divorce process.

Each state is different when it comes to how your marital property needs to be split. Most states have equitable distribution laws, so the money is split in a way that is fair but not necessarily even. In states with equal 50-50 shares, you can still protect this account by finding other assets to make up the difference; the marital assets are divided in two by value, not actually by dividing each account in two. A divorce attorney can help you understand how you can divide your assets legally.

Source: Smart Asset, "4 Things to Know About Splitting up a 401(k) in a Divorce," Rebecca Lake, accessed Sep. 29, 2016

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