How do you Divide a 401(k)?

Can my 401(k) be divided upon divorce?
A 401(k) is subject to division between spouses upon divorce under equitable distribution (in North Carolina) or equitable apportionment (in South Carolina) laws. Even if your spouse was a stay-at-home parent throughout your marriage and did not contribute financially to your employer-sponsored 401(k) account, your spouse may still be entitled to a portion of the 401(k) funds.

“Equitable” distribution or apportionment does not necessarily mean equal division of each account in your marital estate. Typically, we try to avoid splitting every account down the middle. Our goal with equitable distribution or apportionment is to creatively and practically apportion 50% of the marital estate to each spouse without making additional work or costing additional money for the spouses or attorneys to divide accounts. That means we may distribute one account in its entirety to one spouse, but balance the value of that account in the marital estate by distributing a different account entirely to the other spouse.

When is your spouse entitled to a portion of your 401(k)?
It depends on when your 401(k) was established and funded. If you have a 401(k) that you accumulated prior to marriage, those funds are considered “separate property” and are not subject to division in divorce.

If you established and contributed to a 401(k) during your marriage, it is considered “marital property” and is subject to distribution in divorce. If your marital 401(k) increased or decreased passively after the date of separation but before the 401(k) is divided between the spouses, that passive increase or decrease in value of the 401(k) is “divisible” upon the divorce.
If some of your 401(k) was established or funded prior to marriage, some during marriage, and some after the date of separation, it is trickier to establish what portion is “marital” and subject to equitable distribution.

​What is required to divide a 401(k) account?
Dividing a 401(k) in a divorce typically requires a special court order called a Qualified Domestic Relations Order. Having your attorney draft and submit a Qualified Domestic Relations Order (“QDRO”) costs additional money and time, so if there is a way to make both spouses whole (each receiving a satisfactory portion of the net marital estate) without dividing up the 401(k), that is preferred. If such an apportionment is impossible, and a 401(k) account must be divided, your lawyer can draft a QDRO, you and your spouse will sign it, then the QDRO will be submitted to the judge for signature. Once the QDRO is entered by a judge, it can be submitted to your 401(k) plan administrator to facilitate a distribution of a portion of the 401(k) to your spouse.

​If you need a QDRO drafted, or want to know more about 401(k) division in divorce, please schedule a consultation with one of our attorneys and we can walk you through the process.  

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