There are a ton of things to think about when dealing with divorce. Who gets what? Who will take care of the kids and when? What about retirement accounts?
Splitting a 401(k) retirement plan can be something that gets forgotten about or overlooked between two spouses. In this article, we will explain what a 401(k) plan is and how to split one during a divorce in Florida.
What is a 401(k)?
A 401(k) plan is one type of retirement account offered by many companies and employers to employees. The benefits of a 401(k) that are different when compared with other types of retirement accounts are that employees can contribute to their own individual accounts. Employers can then match a portion or all of those contributions.
A 401(k) plan provides many tax advantages. This means that an employee can make contributions to his or her 401(k) account on a pre-tax basis. This means that an employee does not pay taxes on 401(k) funds until they are withdrawn, which typically isn’t until he or she is ready to retire.
What is the Process of Splitting a 401(K) During a Divorce in Florida?
The state of Florida follows the rules of equitable distribution when dividing a 401(k) retirement plan. This means that the Florida Court system uses the 50/50 rule as a starting point when dividing all marital assets. For example, marital assets include property, vehicles, cash, and retirement accounts. Of course, every situation is unique and each divorce is reviewed on a case-by-case basis.
Here are the steps in the process of splitting a 401(k):
Step 1: The divorce decree must order the division of any 401(k) accounts as requested by either or both spouses.
Step 2: A divorce attorney must draft a Qualified Domestic Relations Order (QDRO).
Step 3: Once the order has been reviewed and approved by the Court, you and your divorce attorney can determine the next best course of action for splitting your 401(k).
What You Should Know About Splitting a 401(k) in a Divorce in Florida
If you are in the process of a divorce, or you think you might be in the near future, here are some things you need to know specifically regarding splitting your 401(k):
1. You may have the option to keep 100 percent of your 401(k), however, you will likely need to trade off another asset of similar value.
For example, if you determine you want to keep 100 percent of your 401(k), which has $100,000 in it, then you may need to give up any property that might be worth that amount. Be sure to carefully review your finances and assets as well as consider all tax implications to make the best decision.
2. You can liquidate your 401(k) and give your spouse a certain amount. However, this option likely comes with tax consequences and potential penalties. A better option would be to roll over a portion of your 401(k) into an IRA for your spouse.
3. If you and your spouse both have 401(k)s, then you may each want to keep both of your accounts intact rather than trying to split or liquidate them.
Consult with a Divorce Attorney in Stuart, Florida for Help
If you have specific questions about your divorce, or if you are worried about losing your 401(k), then contact an experienced and knowledgeable divorce attorney in Stuart, Florida for help and advice.
Travis Walker Law is based in Stuart, FL and serves clients in Martin County, St. Lucie County and Palm Beach County. Whether you’re in Stuart, Port St. Lucie, Ft. Pierce, Hobe Sound, Tequesta or anywhere on the Treasure Coast or the Palm Beaches, we’re here for you.