A 401k is meant to provide an additional means of financial support during your retirement. Yet what happens if you and the person that you had planned to spend your years in retirement with divorce? Many who come to see our team here at Carolann M. Aschoff, P.C. from Jersey City are surprised to learn that a 401k is considered a marital asset. Yet given that the contributions made to it come from one's income, the fact that those contributions made during a marriage are viewed as marital assets is understandable.
The question then becomes how to best manage your share. If it is your ex-spouse's 401k that you are dealing with, you basically have two options. The first is to roll your portion into your own 401k account or into an individual retirement account. The main advantage of doing this is the added money that can be made from it both through earned interest and investment returns (which may vary depending on what type of strategy you authorize your account administrator to employ). The disadvantage is that money is not able to help you in the here-and-now.
Typically, if you withdraw funds from a 401k prior to reaching the age of retirement you can incur a heavy tax penalty. However, according to Sensible Money, a divorce provides an exception to this rule (provided that the withdrawal is done through a qualified domestic relations order). You lose out on the potential of seeing those funds grow, yet if you need money right now, this may be the preferred option.
More information on managing complex asset division during a divorce can be found here on our site.