How to Avoid Mistakes Dividing up 401K Assets
- Different types of retirement accounts are subject to different rules.
- Dividing workplace plans like 401(k)s and traditional pensions requires a court order that is separate from the divorce agreement.
- It’s important to make sure the attorney drafting that separate document is an expert in this.
Workplace retirement plans
If your soon-to-be ex has a workplace retirement plan and you are entitled to a piece, the only way to legally access your share is through what’s called a qualified domestic relations order, or QDRO. This is the case whether it’s a 401(k) plan or traditional pension plan.
A QDRO is separate from a divorce agreement, although it is based on the contents of that decree. Because these court orders are a specialized legal area, make sure the attorney who drafts it has some expertise.
Ideally, that lawyer — who may or may not be your divorce attorney — will contact the plan’s administrator to ensure the required steps are taken for a smooth transfer of your share of 401(k) funds or pension plan benefits (whether immediate or future).
Before this document is submitted to the court, you and your divorce attorney should review it to ensure the intent of the divorce agreement is reflected in the QDRO. If more than one retirement account is getting split, a separate order is required for each one.
“If none of that review occurs and the [QDRO] happens in a vacuum, mistakes can happen,”
said certified financial planner Lili Vasileff, founder and president of Divorce and Money Matters in Greenwich, Connecticut.