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Protecting a 401(k) in divorce

On Behalf of | Nov 10, 2021 | Family Law |

Like many other states, Michigan adheres to the equitable distribution method to divide martial property in a divorce. As such, the court will not necessarily divide a couple’s assets 50/50 but award each spouse a share of marital assets that is fair to both parties. One aspect that can receive a 50/50 split, however, is a 401(k) retirement account. Since many couples have at least one 401(k), the account owners should understand how to protect their retirement accounts. 

Distributing 401(k) funds in divorce 

Barring a pre or postnuptial agreement that provides otherwise, the court will consider funds in a 401(k) retirement account as marital property and subject to division in divorce. If only one spouse has a 401(k), the other spouse can typically expect to receive half of the funds as part of the property division process. If both spouses have their own 401(k) accounts, and the amounts are more-or-less equal, the court may simply allow each party to keep his or her account. 

Furthermore, spouses can come up with their own plans involving the division of 401(k) assets through mediation or the collaborative law process and present the agreement to the court. Couples can also draft agreements in situations where one spouse has a 401(k) and the other doesn’t, whereby the non-account holder will receive some other asset or assets equal to the amount in the other spouse’s 401(k). Divorce is also one of the few times 401(k) account holder can take withdrawals from their accounts without penalty by using a Qualified Domestic Relations Order. 

Understanding one’s options 

Divorce is a complicated process in any event, with various aspects for both spouses to consider. If a couple can work together to come up with an agreement on their own, they can save a lot of time, money and stress in the long run. Whatever the case, each spouse will need to work directly with an experience family law attorney to fully understand their options. A lawyer will work protect a client’s rights and best interests and can present any agreement to the court for final approval. 

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