Division of a 401(k): A Risky Area

People who come to see us always have questions about their 401(ks)s. This often is the most significant asset to be divided in a divorce. It is a risky area because there are so many choices, and a lack of knowledge could adversely affect the size of a person’s share. It is critically important to get good advice and good craftsmanship. Couple are free to divide the account as they choose, or to allocate it all to one spouse. In most cases where the couple cannot reach an agreement, the court will divide the "martial portion" equally, but it is not required to do so. What looks like an equal division may not be as it seems depending on the wording used, so the agreement and order must be expertly drawn. The marital portion is the part earned during the marriage. The method for dividing defined contribution plans such as 401(k)s or 403(b)s is to utilize a Qualified Domestic Relations Order ("QDRO"). The QDRO will order the division according to the method and amount chosen by the parties or by the court. This can be a dollar amount or a percentage of the benefit. When a loan has been taken out against the 401(k) this must be taken into account in the order or agreement, and care should be taken not to allow further loans or withdrawals until the money is divided. The matter of survivor benefits is another important aspect of the division. The drafting of a QDRO is a highly complex job. There are numerous choices that go into how various terms are worded which can make a significant difference in each person’s share, and the requirements of the individual Plan Administrator must be taken into account. Merely utilizing the plan’s sample QDRO is not sufficient, as the document should be carefully crafted to meet the specific needs of the parties involved, with careful choices regarding optional terms to protect rights in this key asset division.

This article was written by Phoebe P. Hall. Managing Partner/Attorney, Hall & Hall, PLC, 1401 Huguenot Road, Suite 100, Midlothian, VA 23113, and 4323 Cox Road, Suite 100, Glen Allen, VA 23060, Tel: (804) 897-1515, Fax (804) 897-2499

The information you obtain at this site relates to Virginia law only. It is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.