What is the process of splitting 401(k) accounts in a divorce?

The question of how to divide assets and debt might be on your mind if you are getting divorced or are already going through one. This may be the most complex and tumultuous phase when significant assets are involved in the divorce.

Getting a full grasp of the breadth of asset distribution might take some time. Initially, many people are concerned about who will keep the property or how their funds will be divided. The division of retirement plans, social security pensions, and other benefits should consider these factors.

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How does a 401(k) relate to the marital property?

There is a possibility that you may believe that your contributions to your 401(k) account are property of your own. However, any contributions you make during the course of your marriage will be considered marital property even though they were made as your own property. 

This implies that your spouse may be entitled to 50% or more of the amount you contributed to your 401(k) during the ten years you were married, assuming you made $100,000 in contributions. The fair distribution law in Alabama does not guarantee a 50/50 split. Courts have the power to consider various factors when determining what constitutes an equitable distribution of assets.

401(k) Distribution Exceptions

As long as you contributed to a 401(k) during your marriage, you don’t have to let a judge decide how you and your spouse will divide your property after your divorce. Contributions are considered marital property and would be subject to equitable distribution by a judge. It is actually best to do so only as a last resort.

When a divorce occurs, a prenuptial agreement specifies how marital property, like 401(k)s and retirement savings, will be divided. If a couple inserted a clause in their prenuptial agreement specifying that any contributions made to their 401(k) plans will be recognized as separate property, then that clause will apply.

Couples can arbitrarily divide their assets if a prenuptial agreement doesn’t exist.

Both partners might select to keep their 401(k) contributions separate and not include them in the division of marital assets if they had stable employment and generally equivalent contributions.