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How Do You Divide a 401(k) in a Divorce?

can I cash out my 401k before divorce

Retirement accounts are there to provide for you after your ties to work and your career have ended or are drastically altered. They give you the freedom to look beyond the paycheck and embrace life outside of work.

While divorce can lead to a happier time in your life as well, it can also have an impact on the nest egg you’ve been nurturing for so long. Marriages can mean shared assets, even when they’re tied more closely to one spouse. When one partner spends their life in a career that provides healthy retirement benefits, both partners can still have plans for it.

This is why legal advice can prove vital. It’s often important to consult a divorce lawyer experienced in asset division in such an impactful process as dividing a 401(k) in divorce.

How Does State Law See Marital Assets?

how do retirement accounts get divided in divorce

North Carolina uses equitable distribution to divide property, which means the retirement assets aren’t split down the middle. Instead, the court will look for a fair divide between you and your spouse, depending on some key factors:

  • The length of the marriage
  • Contributions to one another and the household
  • Individual incomes and property
  • Child custody and ongoing support

North Carolina sees assets gathered during marriage as marital assets, and those outside marriage as separate property, though there can be exceptions to this broad statement.

RELATED: Equitable Distribution – What Does “Marital Property” Mean in Property Division Cases?

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How Do You Split Retirement Assets Like a 401(k)?

How do you divide a 401k in a divorce

Like most other assets, retirement accounts like a 401(k) or IRA can enter into the equation of equitable distribution. The role they play, however, depends on when they were established and how they behaved over time:

  • Before: A 401(k) established before marriage could be a separate asset if neither spouse benefited from it during the marriage. If the asset was rolled over to a current employer without any contributions, matches, or deferred compensation during the marriage, then it could be separate.
  • During: Funds added to the retirement account during the marriage are likely marital assets, though the line can depend on the payments. The needle can shift if the 401(k) started before the marriage but the account matured, or money was paid in or out before the separation.
  • After: A 401(k) that continues to grow during your separation can still count toward a divisible asset. The change in value up to the time of your divorce could add to the value of your property.

It’s possible that a single account falls across the before, during, and after periods, making 401(k) division a complicated process that depends heavily on values across the timeline.

What Is a Qualified Domestic Relations Order?

A qualified domestic relations order (QDRO) is a divorce agreement that outlines how a spouse will receive a portion of the retirement benefits. The spouse looking for a separate say in the retirement savings will usually be responsible for drafting it, and the other spouse will sign off. The drafting party generally brings that completed agreement to the plan administrator, often the employer in charge of the retirement account.

Benefit payments depend on the QDRO

 There are several options for payouts, each with different terms that could work better in certain situations:

  • The QDRO can establish an independent 401(k) or roll the assets into another plan
  • There could be a lump sum payment at the time of the order
  • The money can stay in the original plan, with the secondary spouse able to control their share

Dividing Retirement Funds Can Require Extra Considerations

Depending on how a spouse accesses their share of the funds through the QDRO, there can be significant consequences to consider. A lump sum will likely mean the receiving spouse will owe income tax, while keeping the money in a plan could allow tax deferment until payouts begin.

While these actions usually behave like normal with tax implications, the money that comes from a QDRO does have an important distinction. There won’t likely be an early withdrawal penalty, no matter the spouse’s age, which breaks from the standard practice for pulling assets from a retirement account.

Myers Law Firm Can Help You Work Through Dividing Retirement Accounts

Dividing assets can be a complicated matter in divorce, a shared 401(k) account included. Accurately appraising accounts, determining a fair share, and drafting a QDRO could benefit from experienced legal advice.

Myers Law Firm has more than 60 years of combined experience helping clients in North Carolina through the divorce process. Call (888) 376-2289 or fill out this simple form to schedule a free consultation and begin working toward a solution today.


Employee Benefits Security Administration. FAQs about Qualified Domestic Relations Orders. U.S. Department of Labor. https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/qdro-overview.pdf

Howell, C. (2017, September 8). Equitable Distribution: The Marital Property Presumption. University of North Carolina School of Government. Retrieved from https://civil.sog.unc.edu/equitable-distribution-the-marital-property-presumption/

N.C. Gen. Stat. § 50-20 (2013)

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.

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