How Does Divorce Affect Your 401k and Pension Earnings?

401k retirement
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In general, if you’re getting divorced, you will have to split your 401k and pension with your former spouse, unless you and your spouse agree to a different arrangement. However, because the value of these assets may change, determining exactly how to divide them can be challenging. Most couples choose to divide 401k and pension benefits by either trading something of value or splitting the benefits into two accounts. However, a family law attorney can further advise you about the best way of dividing retirement assets in your particular divorce case.

Marital Property

Like other assets, including homes and bank accounts, most retirement benefits are considered marital property. This means that both spouses have a right to them in a divorce. However, there are some benefits that are not considered marital property. These usually include railroad retirement benefits, social security payments, compensation for injuries sustained while serving in the military, and worker’s compensation payouts. If one spouse contributed to a retirement account before the marriage, the amount contributed prior to marriage is usually not subject to division. However, the spouse will have to prove that the amount was contributed before marriage.


One of the most common ways to divide your 401k and pension benefits during a divorce is a buy-out. One spouse will keep the entire 401k or pension but will trade something to the other spouse that is equal to what they would have received had they divided the accounts based on their present-day value. For example, one spouse may keep the entire 401k but will give the other spouse stock investments that add up to the value of half the 401k.

While this option is popular, it can also be complicated since determining the exact value of all retirement benefits before you have retired can be challenging. Most couples hire an actuary to determine the value of the retirement assets as well as other assets that would satisfy a buy-out agreement.

Two Account Split

Another common method of dividing retirement benefits is to divide them into two accounts, with each spouse receiving a portion. If you do this, however, you need to ensure that you divide the money in such a way that you will still receive all associated tax benefits. You may need to obtain a Qualified Domestic Relations Order to split the accounts without incurring tax fees.

If you’re going to split the 401k or pension into two accounts, it’s often in your best interest to divide based on percentages rather than dollar amounts. If your divorce takes some time to complete, the market could fluctuate during the proceedings. This means that the account value could change drastically. For example, if a husband and wife had originally agreed that she would receive $300,000 of a $500,000 account, and during the proceedings the entire $500,000 account dropped to a $300,000 value, she would still receive her money, but he would be left without anything.

Seeking a Family Law Attorney

Understanding the value of retirement benefits like the 401k and pension plans can be difficult, especially if you’re going through a divorce and already have quite a bit on your mind. A family law attorney can help you understand which marital assets you are entitled to, their value, and how to divide them fairly.

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