What happens to a 401k during a divorce

| Jun 17, 2021 | Divorce |

Divorces are already a complicated process involving the splitting of assets and property. Add in any retirement funds, and it can get extremely technical.

401ks especially complicate the process because of the tax implications, fluctuating market values and the unique rules and laws that apply.

It is important to note that any funds contributed to a 401k account during the marriage are considered marital property unless there is a prenuptial agreement.

What if there is no prenuptial agreement?

The first thing you should know is that the state of Wisconsin is not an equitable distribution state, it is a community property state. All marital property is to be divided 50/50 regardless of overall individual contribution to shared wealth.

Your ex then would be entitled to 50% of all the funds you contributed to your 401k while you were married. Any contributions made before the marriage would be considered separate property.

Another thing you should consider is that just because your ex is entitled to 50% of your 401k, it does not mean you will have to give it to them.

There are several ways to keep your 401k untouched during a divorce.

Here are a few examples:

  1. When you sell your marital home, you can pay the amount owed from your 401k with proceeds from the home sale.
  2. You could consider selling any stocks, bonds or other personal property you own to cover the amount.
  3. If you can borrow money from a parent, sibling, or another family member for a short period, you can use the loan to pay the sum.

One additional note: If you and your ex both have retirement accounts with a similar amount in each, you can always agree to leave them both untouched.

Splitting assets and property during a divorce is never a desirable experience. Consider asking for assistance to ensure you are protecting your future retirement plans.