What will happen to my 401(k) plan?

What will happen to my 401(k) plan?

On behalf of Stange Law Firm, PC posted in Property Division on Thursday, January 16, 2020.

Although there are many types of retirement plans out there, many if not most people in the Saint Louis area have what is called a defined contribution plan like their employer’s 401(k) plan.

As the name implies, an employee is free to make contributions into an investment fund that, in theory, will yield a return at a generous rate. These contributions have tax advantages and, in many cases, get partially matched dollar for dollar, up to a certain percentage of one’s salary, by the employer.

If left untouched, the value of these plans can grow to tens or even hundreds of thousands of dollars as the years go on.

Not surprisingly, since they often constitute a big chunk of a family’s financial resources, they are a contentious topic during a divorce or legal separation. As with any other property, family law courts in the Saint Louis area will divide a 401(k) in an equitable manner, which may or may not be 50-50. Moreover, in some situations, one spouse may argue that some, or even all, of his or her 401(k) should be exempt from the property division process.

On a practical level, dividing a 401(k) is not simply a matter of writing up a divorce decree. One party will likely have to prepare and submit a qualified domestic relations order, or QDRO, to the administrator of the 401(k) plan so that proceeds can be split without adverse tax consequences. Doing this will require skill and attention to legal details, as the costs of not completing this step properly can be high.

A property division involving a 401(k) or other type of retirement plan can be complicated, and it is important to a person’s legal and financial interest that this step of the process be handled with due professional care.

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