How to Receive a 401(k) As a Divorce Settlement

401(k) plans can be distributed in divorce actions.

The family law codes of many states contain provisions relating to the division and distribution of marital property. Individuals wishing to assert claims to their spouse's 401(k) plans must generally follow a certain process to receive a tax-free division of the account. While the procedure for receiving a spouse's 401(k) plan in a divorce varies from state to state, the process will generally involve a similar set of steps in all jurisdictions.

Instructions

1. Preserve your claim to property division under the laws of the state where your divorce action is taking place. This may involve filing an answer to your spouse's claim for absolute divorce, asserting a claim in conjunction with a divorce which you file or entering into a separation and property settlement agreement with your spouse prior to the filing of any action. Under the laws of many states, you will lose your right to claim a portion of your spouse's 401(k) plan if you fail to properly preserve your claim prior to the entry of a divorce decree.

2. Resolve the entirety of your property division claim with your spouse. If you have entered into a separation and property settlement agreement with the other party, this is generally included. If you had to assert your claim in response to a divorce complaint, or if you have asserted your claim as part of your own complaint, you may have to litigate for this. Most state codes require a court to perform a mathematical balancing act when dividing marital property and debt. If your spouse has a lot of debt on his side, he might be entitled to all of his 401(k) to balance it out.

3. Prepare a qualified domestic relations order (QDRO) for signature by the judge. If you are entitled to any part of your spouse's 401(k), the master order in your divorce will specify what proportion of the plan you are to receive. Many domestic relations attorneys refrain from drawing QDROs themselves and subcontract the work out to QDRO preparation companies.

4. Obtain the necessary approvals for the QDRO. Send the draft QDRO to your spouse or her attorney. Once the opposition approves your draft, forward a copy to the plan administrator. Within a few weeks to a few months, you will receive an indication from the administrator whether or not your QDRO qualifies.

5. Obtain your judge's signature on the QDRO. File the signed document with the clerk of court, provide a copy to the opposition and forward a signed original to the plan administrator. Depending on the plan, you should receive a rollover of your portion of the plan balance within a few weeks to a few months.

Tips & Warnings

• Get an expert to prepare your QDRO.

References

• "Qualified Domestic Relations Orders FAQ"; United States Department of Labor; Retrieved August 18, 2010.
• "The Division of Retirement Benefits Through Qualified Domestic Relations Orders"; United States Department of Labor; Retrieved August 18, 2010.
• "Qualified Domestic Relations Orders and the PBGC"; Pension Beneift Guarantee Corporation; Retrieved August 18, 2010.
• "Qualified Domestic Relations Order"; Divorcesupport.com; Retrieved August 18, 2010.
• "Qualified Domestic Relations Orders"; Lawdata, Inc.; Retrieved August 18, 2010.