Are 401(K) Accounts Marital Property?

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When it's time to divide marital assets, things may not always be what they seem. It can appear to be unfair to share the savings one spouse has set aside for their retirement with the other spouse who contributed nothing. Read on and find out what happens with retirement accounts during a divorce.

Retirement Accounts May be Marital Property

The 401(k), IRA, and pension accounts held by a party are, in almost all cases, considered marital property. That means that some or all the funds of a retirement account are part of the divorce agreement. Some may argue that the money should belong to the party that worked and contributed to the account. However, that is not what marital property is about. It's about dividing up the assets of the marriage. If you buy a home during your marriage, it's marital property. That does not necessarily mean that the home will be split in the divorce, however.

What Are Marital Assets?

Once you understand that anything you purchased or acquired during the time of the marriage is marital property, it's easier to understand how those assets are divided between the parties. However, it's important to know that not everything you and your spouse own falls into the marital asset bucket. The following categories of assets are probably not marital assets:

  • Gifts given to only one of you
  • Lottery and gambling winnings (in some states, check with your divorce lawyer)
  • Anything inherited by one party
  • All property acquired prior to the date of the marriage.

That means that if you began contributing to the IRA before you married, part of the account is considered separate property and is not marital property.

It's About the Big Picture

Unless you live in a community property state, which includes nine states at the present, the judge will take an equitable distribution view of your marital property. That means marital property should be divided with an eye toward fairness.  However, don't be misled into thinking that sharing your 401(k) with your non-working spouse is considered unfair. The law says that what occurred during your marriage is an issue that should have been resolved during the marriage. You must still divide any retirement accounts if they fall into the marital property category.

QDRO Guidance

The law allows for the distribution of certain retirement accounts without incurring the usual fees and penalties. A qualified domestic relations order (QDRO) should be prepared and filed prior to the divorce becoming final. That allows the parties to divide the account in the way they wish. Taxes must be paid, however, if the funds are not deposited into a qualified retirement fund prior to tax day.

Speak to a divorce lawyer for any questions about this complex issue.