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Tips for dividing a 401(k) in a divorce

A retirement account might be one of the most valuable assets a Maryland couple needs to divide in a divorce. To avoid paying unnecessary taxes and penalties, it is important that the spouses take steps to divide the accounts correctly.

With a 401(k) or a pension plan, they will need a document known as a qualified domestic relations order. It is necessary to work with the plan administrator to make sure the proper procedures are followed. If there are multiple retirement accounts, each one requires a separate QDRO. A spouse should review a QDRO with their attorney to make sure it is consistent with the divorce agreement. The QDRO also needs to specify how the distribution will be received. It could be rolled into an IRA, or the receiving spouse could take it directly. In the later case, the spouse would be required to pay regular income tax on the distribution.

A spouse cannot be changed as beneficiary on a 401(k) without giving approval. If such an action is desired, a spouse should not agree to the change prior to the divorce. Otherwise, the spouse might get nothing if the partner who owns the retirement account dies before the divorce is final. People should also familiarize themselves with tax rules before splitting an IRA.

In many divorces, property division will involve other assets as well. For example, a couple might own a home together. One could buy the other out, or the home could be sold. Another option could be for one spouse to keep the home and the other to keep the retirement account. Family law attorneys could help a couple through the property division process.

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