Donna Dougherty Law P.C.

Options for equitable 401(k) division

When it comes to distributing property during a divorce, Virginia law follows the principle of equitable distribution. This holds true for retirement plans, such as pensions and 401(k)s, as well as other monetary assets. The process of dividing a 401(k) can cause turbulence for both parties, particularly in a high-asset divorce.

According to Virginia's legal code, when a battle over property division goes to court, the court is responsible for determining the ownership and value of all debts and properties and fairly distributing both assets and debts. Regardless of which spouse holds the job associated with the 401(k) or other retirement plan, the court may deem some portion of this asset to be marital property and may name the other party a beneficiary to a percentage of the plan's payouts. However, no party involved is entitled to more than half of this "marital share."

Although this legal practice may seem to disadvantage the owner of the 401(k), there are good reasons for an equitable division of retirement plans. Such division helps to protect the wellbeing of unemployed or underemployed spouses, as well as providing support for households and children. Thus, the 401k Help Center offers several strategies to help divorcing couples divvy up their 401(k)s while protecting their own finances.

For example, couples can do some financial juggling by liquidating the marital share of the 401(k) or rolling it over into an IRA. The former option may be attractive for parties who need immediate cash, but this approach has problematic tax and legal implications. The latter option allows for penalty-free withdrawal of a portion of the 401(k) but is only an avenue for those who are older than 59 ½.

More simply, spouses can decide to split the 401(k) in half, which allows both parties financial freedom and relatively uncomplicated asset division. Last but not least, the owner of the 401(k) can opt to compensate his or her spouse for the marital share of the asset, thereby retaining full control of the retirement plan without shorting the spouse. Above all else, being knowledgeable about the options and the requirements of dividing a retirement plan is the best way to resolve this issue harmoniously.

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