Like the majority of other states, North Carolina divides marital property and debt under the laws of equitable distribution as opposed to community property. One of the assets that a family court in North Carolina can divide pursuant to a divorce case is a party's 401k account. The exact portion of the account to be divided and the percentage share each party gets can vary from case to case.
Equitable Distribution In North Carolina
In North Carolina, the law presumes that a 50-50 division of marital property and debt is equitable, or fair. Since fair and equal don't always mean the same thing, North Carolina General Statutes Section 50-20(c) contains a list of 14 factors that a court can consider in deciding whether to award an unequal distribution of more property and less debt to either side. North Carolina law defines marital property as all property earned or acquired by either party between date of marriage and date of separation, with exceptions for property obtained by gift or inheritance.
The marital portion of your 401k consists of all contributions by you and your employer attributable to work you did between the day you married your spouse and the day you split. The marital portion also includes increases and decreases in value on those contributions. To figure out how much of your account is marital, subtract the number of shares you had on your wedding day from the number you had on the day you separated and multiply that number by current share price. If you want to get even more technical, you can calculate how much dividend reinvestment during marriage was attributable to your separate shares. Back out the value traceable to dividends on separate property out of the marital total.
How a 401K Is Divided
Once you've determined what your ex-spouse's portion of your 401k is, you have to get a qualified domestic relations order (QDRO) signed by the judge, filed with the court and submitted to the plan. A QDRO is a court order that divides your account tax-free. As QDRO preparation is fairly technical, and as each plan requires different language; this is an area best left to attorneys and QDRO preparation experts. Once a QDRO is entered and approved by your 401K plan, your ex's portion will be separated out and either rolled over to a tax-deferred account of her own or paid directly to her.
Alternatives to 401K Division
You may feel that your 401k represents your future and a secure retirement. Dividing a 401k isn't always necessary, even if the whole account is marital property. If your ex-spouse owes you alimony, he may agree to forgo his part of the account in exchange for a reduced or eliminated obligation. Additionally, marital property in North Carolina is divided not asset by asset, but estate by estate. If your marital estate has sufficient assets in it, you can compensate your ex for his part of your 401k in the form of other marital property or reduced responsibility for marital debt.