If you and your spouse divorce, not only do you have to separate your lives, you also must separate the property you acquired together. In Massachusetts, 401(k)s and other retirement accounts are considered property. This means that your spouse may be entitled to a share of your account if you acquired it, or contributed to it, during your marriage.
When dividing your property, including your 401(k), a Massachusetts court does so according to a legal concept known as equitable distribution. The division must be fair and reasonable, but not necessarily equal. Only marital property is divisible in divorce, that which either you or your spouse acquired during the marriage. Your separate property is not divisible. Separate property includes any asset that either you or your spouse acquired before you got married, or received by inheritance or gift while you were married.
Division and 401(k)s
After the court distinguishes marital property from your separate property, the judge proceeds with dividing it equitably. Even if your 401(k) was opened prior to your marriage, the court still can divide the portion of it that represents contributions made after you married. The court considers a number of factors when dividing this portion, such as the duration of your marriage, financial misconduct on the part of you or your spouse, and the needs and liabilities of each of you.
QDROs and Payment
If the court awards your spouse a portion of your 401(k), you or your attorney must draft an order to release the funds. A specific document known as a qualified domestic relations order, or QDRO, must advise your plan administrator of your spouse's right to payment from your 401(k), and the amount she is to receive. After the plan administrator reviews the QDRO for completeness and approves it, your spouse becomes eligible for payments.
Although QDROs establish a non-employee spouse's right to payment, the retirement plan itself determines when those payments can be disbursed. In the case of your 401(k), your spouse might begin to receive payments as soon as the plan administrator approves the QDRO. This is because 401(k) accounts permit immediate withdrawals if they're made pursuant to a QDRO. These withdrawals are not subject to an early withdraw penalty because they are made according to a family court order. Your spouse can roll her share over into a separate 401(k), an IRA, or another retirement account. She also has the option of receiving a cash payment.