Many American workers begin contributing to retirement accounts when they are very young. It is important to be prepared to support yourself when you are done working. If you and your significant other decide to divorce you may wonder how your retirement account will be impacted. Contact a skilled Memphis, Tennessee property division lawyer to discuss your options for your 401(k) during your divorce.
What is a 401(k) Account?
There are various types of retirement plans that employees can choose from when they work for certain companies. One retirement plan that many United States workers contribute to is a 401(k). Employees can contribute a percentage of their paycheck to the account while employers match their contributions up to a certain amount.
There are two main kinds of 401(k) accounts, a traditional account and a Roth. Traditional 401(k) accounts reduce an employee’s taxable income but when withdrawals are made after retirement the money will be taxed. With a Roth account, the contributions are made after considering tax and when money is withdrawn later it will be tax-free.
How are Retirement Accounts Typically Divided During Divorce?
While retirement accounts can seem more complex, they are divided between spouses like any asset during a divorce. Tennessee is an equitable divorce state meaning that during a divorce property will be distributed between spouses fairly but not necessarily equally. The first step in dividing assets is determining if they are marital or separate.
Any financial contribution made to an employee’s 401(k) during their marriage is considered marital property and subject to property division. To divide assets from a retirement account a couple will have to submit a QDRO (Qualified Domestic Relations Order) which will outline how the account is split and how the other spouse will be given their share.
How Can I Protect My 401(k)?
During your divorce, you probably want to protect your retirement account and retain as much of your 401(k) as possible. The following are some ways that you can protect your assets during a divorce.
- First, hire an attorney. You should always have representation during a divorce but they can be especially beneficial when dealing with property division. A lawyer will offer you skilled knowledge on how to protect your rights during the divorce process and retain as much of your 401(k) as you can.
- Get organized and collect all relevant information. Avoid disputes and conflicts that could arise from being dishonest. Present accurate documentation about the money tied up in your retirement account. If you attempt to conceal information or assets you could face legal consequences.
- Be willing to negotiate. Each spouse will have different priorities. If your 401(k) account is important to you be willing to compromise on other areas of the divorce and offer your spouse another asset of similar or equal value in exchange for you getting to keep your retirement account.
