Although much of the property division process in a divorce is focused on more tangible assets such as real estate, a home and bank accounts, it is also important to consider accounts that may not currently be accessible. A 401(k) is an example of such an asset, especially if the owner of the account has not yet reached retirement age. A New Jersey court might still view such an asset as being subject to division during a divorce as the principle of equitable distribution is applied.
If a 401(k) is to be included in the terms for property division, then the court will clarify the portion to which each spouse is entitled. This information is detailed in a qualified domestic relations order. The QDRO is the decree that authorizes someone other than the account holder to become an alternate payee. A QDRO may be issued for a former spouse or for another dependent. It might be used to facilitate payments for property rights, child support, or alimony.
Once a QDRO has been issued, it must be provided to the administrator of the plan so that it can be verified. The administrator needs to confirm that the order is valid prior to proceeding with account division. A former spouse or dependent who receives a portion of a 401(k) through a QDRO might choose to leave the funds in place for continued growth and management. This may result in restrictions on adding or withdrawing funds until the other party retires. However, this may allow the account to grow while retaining a tax-sheltered status.
A spouse who is unsure of how to handle 401(k) funds connected to a QDRO might seek financial guidance. A lawyer assisting in a high-asset divorce may include a financial advisor on the legal team to address such issues.
Source: 401k.org, “401(k) and Divorce”, January 05, 2015
