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Fighting to keep one’s full 401(k) in a divorce

| Feb 1, 2021 | Property Division |

Those people in New Jersey planning for their retirement almost certainly include their spouses in those plans. Thus, their divorces will no doubt impact that potential future (and beyond simply changing who they will spend those years with). Indeed, potential sources of retirement income (such as a 401(k) account) suddenly become subject to property division.

In most cases, the court divides up a current 401(k) account into two separate accounts during property division proceedings (with the exception being cases where one elects to cash out their portion of a 401(k), which the website SmartAsset.com correctly list an option without the fear of a tax penalty). However, 401(k) account holders may want to look to retain all those funds.

Giving up one’s stake in another marital asset

Is this even an option? According to the 401(k) Help Center, it is. To do it, one would need to convince their ex-spouse to give up their interest in their 401(k) account. This would likely require them to give up their stake in another marital asset of comparable value.

Determining if it is worth it

One looking to keep their full 401(k) in their divorce may think the aforementioned option offers no drawbacks, yet that may not be the case. The court values the portion of the 401(k) that one asks a non-contributing spouse to give up at its potential future value (after years of growth through earned interest and investment returns). This means that while one might think they understand how much they will have to give up to keep their 401(k)’s, in reality, they may need to sacrifice much more. Depending on how far they are from retiring, this fact should factor into their decision.