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Keeping your full 401(k) in your divorce

On Behalf of | May 19, 2021 | Family Law

Like many of those that come to see us here at the Wallace Law Firm for assistance with their divorce cases, you may feel completely prepared going into your divorce proceedings. The news, then, that your 401(k) account is subject to marital property division may come as a huge shock.

Yet upon further review, it should not. The contributions made to your 401(k) account during your marriage come from marital income (thus prompting the court to view them as marital assets). Still, this knowledge may do little to reduce your concerns about how dividing up your 401(k) may impact your retirement. This concern may prompt you to question whether it is possible for you to retain your entire 401(k) in your divorce.

Giving up on another marital asset

According to the 401(k) Help Center, this is a possibility, yet not without a cost. That cost likely includes you giving up your interest in another marital asset of equal value in exchange for your ex-spouse relinquishing their interest in your 401(k).

Considering the pros and cons

At first glance, this may seem to be a simple choice given your desire to avoid reducing your potential retirement income. Yet depending on how far you are from reaching retirement age, this course of action may require you to give up much more than you anticipate.

The court values retirement assets at their potential future value (after years of growth from projected investment returns and earned interest). This may mean that you have to forego an extremely valuable asset (such as your marital home) in order to keep your 401(k). You should consider this when determining whether fighting to keep your full 401(k) is truly worth it.