How to Divide up a 401(k) After a Divorce

By Tom Streissguth

The laws of each state govern the division of property in a divorce. Although many divorces result in a 50/50 division of assets, family circumstances may bring about a different percentage, depending on the judgment of the court. If you have saved money in a 401(k) arrangement with your employer, the court will assign a portion of those assets to your spouse during the proceedings. It's important to follow the proper steps and obtain a valid QDRO to avoid IRS penalties.

Step 1

Contact your 401(k) administrator and explain that you anticipate a divorce case that will involve a division of the plan's assets. Ask for a model Qualified Domestic Relations Order. This will help you in a proper division of assets and avoid the 10 percent early-withdrawal penalty that the IRS will assess against any disbursements from the account. You use the model order to make sure the QDRO issued by the court in your case is complete and valid.

Step 2

Provide your administrator with the court-ordered division of assets or QDRO. To be valid, the QDRO must have your name and current address, the name and current address of your spouse or alternate payee, the percentage of the assets to be disbursed to your spouse, how the payments will be made and how the percentage division has been determined.

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Step 3

Obtain your administrator’s verification of the QDRO. The administrator must account for all payments to your spouse, state the procedures used to divide the assets and notify you of his decision on the QDRO’s validity. If your plan is self-administered, you still must draw up these documents and include all the required information. If this is not done, the IRS will assess a 10 percent penalty for early distributions (as long as you and the alternate payee are under the age of 59-1/2).

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