Should you fight to retain your full 401(k)?

| Jul 30, 2020 | Divorce |

Past posts on this blog detailed what types of assets qualify as marital property. It may come as a surprise to you to learn that a 401(k) falls on this list. Your 401(k) account likely exists due to your employment in Pittsburgh. Thus, since your employment is typically an individual effort, you may view that account as separate property. Yet it may not be the full account that is subject to property division; rather, it is those contributions made to the account during your marriage that the court defines as shared assets.

Having to split a portion of your 401(k) may dramatically impact your retirement plans. This may prompt you to question whether it is possible for you to retain the full value of the account in your divorce.

Keeping your full 401(k)

According to the 401(k) Help Center, your only option for keeping your full 401(k) would be to convince your ex-spouse to give up their claim to it. You may be able to do this by agreeing to relinquish your stake in a marital asset of equal value. This is may seem like an easy decision, yet there are important factors to consider before approaching your ex-spouse with this idea.

Valuing your ex-spouse’s share of your 401(k)

Most important of these is the challenge in valuing your ex-spouse’s portion of your 401(k). They will likely not view their stake at what its current value is, but rather what it may be once you reach the age of retirement (after experiencing growth through earned interest and investment returns). This may require you to give up more in exchange than you anticipate. That estimated amount will lower, however, after you subtract the imputed tax taken upon your account’s disbursement.