Can you keep your full 401(k) in your divorce?

| Jun 1, 2020 | Divorce |

Previous posts on this blog detailed the fact that your 401(k) ranks among your marital assets, making it subject to property division. Yet while your divorce certainly impacts your retirement plans (as the person you planned to spend your retirement years with is no longer at your side), that does not mean that you will need any less income during that time.

This prompts the all-important question of how losing a portion of your 401(k) in your divorce will impact those plans, and what (if anything) you might be able to do to mitigate that loss.

Keeping your full 401(k)

Legal precedent mandates that a portion of the contributions made to your 401(k) during your marriage go to your ex-spouse. What if, however, they were open to relinquishing their stake in those contributions? The 401k Help Center proposes that you might make this happen by approaching them with this proposal: you give up your stake in a marital assets of equal value, and in exchange, they forgo their interest in your 401(k).

Weighing the potential trade-offs

At face value this may seem to be a no-brained, yet there are financial consequences to this decision that you may not anticipate. When valuing your ex-spouse’s portion of your 401(k) assets, the court bases that value on what it might potentially be in the future (after years of projected growth through interest and investment returns). Thus, while you may think you know now the exact value you will have to give up to retain your full 401(k), the actual value may end up being much higher (requiring you to walk away from your interest in an equally valuable marital asset).

These details are not meant to be legal advice, but rather basic information to help you make an informed decision.