Dividing up retirement accounts in divorce is not always easy. In the case of your 401(k), you cannot even use your divorce settlement to split it between you and your spouse. Instead, you must use a Qualified Domestic Relations Order to divide its contents. You may wonder if other options exist to deal with your 401(k).
Kiplinger describes some possible alternatives to dividing your 401(k). Keep in mind that divorce cases vary, so one or more of these options may not be open to you depending on your circumstances.
Negotiate to keep the 401(k)
One option is to trade additional property to your spouse in exchange for retaining the full 401(k). This might seem simple to pull off, but keep in mind that taxes and the growth potential of your 401(k) will likely factor into whatever value your spouse should receive in exchange for the entire account.
Liquidate the full 401(k)
Conversely, your spouse could trade you more property. In exchange, you liquidate the entire 401(k) to pay out to your spouse. However, Kiplinger claims this option may not be the most advantageous since withdrawing money from a 401(k) before reaching the age of 59, and a half may incur taxes and other penalties.
Roll over the 401(k)
An alternative to liquidating a 401(k) is to roll it over into another retirement account, such as an IRA. This could give your spouse an account to control while preventing tax liabilities and penalties. Still, you might not have access to this option if you have not left your employer or are not at least 59 and a half years old.
Given the complications involved with accessing a 401(k) plan, it is important to work out a solution as early as possible so that protracted disputes do not drag out the divorce.
