One of the most difficult aspects during a divorce is the division of assets between the divorcing couple. One of the assets that will need to be divided is your 401k.
Even if you have an experienced and quality attorney who can walk you through the process, it will still be important for you to be aware of the facts regarding 401k asset division.
First, how you divide your 401k assets will be largely dependent upon what the laws are in your state. There are two basic kinds of 401k asset division laws in the United States: community property laws and equitable distribution laws.
Under community property laws, your 401k account is viewed as joint property that both you and your spouse must split. Under equitable distribution laws, the judge will split the assets as he or she deems to be fair.
In other words, if you live in a state with community property laws you’re going to get a fifty-fifty split. That being said, the vast majority of states follow equitable distribution laws. This means that you will most likely not get a 50/50 split because the judge considers the factors in your situation to determine what is fair.
With that in mind, there are three specific mistakes that you will want to avoid when dividing up 401k assets in a divorce if you live in an equitable distribution state.
1) Failing To Know What Administrator Rules Are Regarding Divorce
401k plan administrators need to follow very strict guidelines in order to ensure that they are in compliance with the Employee Retirement Income Security Act. Some administrators will divide 401k’s by percentages, others will split it into shares, and others will not allows spouses to take distributions from the plan until retirement. You need to research what your plan administrator’s rules are.
2) Not Understanding The Scope of Your Retirement Accounts
The next big mistake that you can make when dividing up your 401k is not understanding the scope of your retirement accounts to begin with.
This can result in a failure of communications with your attorney or counselor. Being aware of how much money you have in your 401k and what the terms and conditions of your account are will help you understand the division process.
3) Agreeing To Change The Name of Your 401k Beneficiary
Do not agree to change the name of your 401k beneficiary before completing your divorce. This is because if the 401k is in the name of your spouse, you yourself will most likely be the beneficiary. If you change the name before the divorce is finalized, you may not receive all of the funds that you would have otherwise received. Keep yourself as the beneficiary of the account no matter what.