It is not at all uncommon for the property division portion of divorce proceedings in Louisville to become contentious. This is especially true when it comes to dividing up the contributions made to a 401k. On one side of the argument, you have the contributing spouse who believes that given that the funds in the 401k came almost entirely from their individual effort, that they should thus be entitled to all of it. On the other, you have the non-contributing spouse making an equally compelling argument that since those funds came from marital income, they should then be treated as marital assets.
How can such an impasse be overcome? The 401k Help Center offers two common solutions. The first is for the contributing spouse to ask the non-contributing spouse to give up their claim on the 401k in exchange for relinquishing their own interest in a comparable marital asset. This may seem to some to be a simple solution, yet it should be remembered that the value being given up is based on the future potential value of the 401k (taking into account investment income and earned interest). Therefore, the contributing party may be required to give up more than they initially bargained for.
The second option is to have the family court hearing the case to craft a Qualified Domestic Relations Order. With this, one can then have their 401k divided with their ex-spouse and have a new account opened in their ex-spouse’s name.
A third solution has also been proposed for dividing up a 401k in a divorce, with that being for the non-contributing party to cash out the portion owed to them right now. Typically this could invoke an early withdrawal penalty from the IRS. Yet according to CNBC.com, A QDRO permits early withdrawals in a divorce case.
