Most of those that come to see us here at the Law Offices of Rebecca Gonzalez, P.C. often believe they know everything to expect heading into their divorce proceedings. It is for this very reason that so many express shock at having to divide up a 401(k).
Many in Texas believe a 401(k) account to be an individual asset (given that such a fund typically only exists due to one’s individual employment efforts). Yet while that may be true to a certain extent, the court considers contributions made to an account during a marriage as marital property.
Accessing 401(k) funds during a divorce
This inevitably prompts the question of how do family courts divide up a 401(k)? Typically the court issues a Qualified Domestic Relations Order allowing the 401(k) plan sponsor to make disbursements to an alternate payee. This then allows the sponsor to divide the fund up into two separate accounts (with each party in the divorce then assuming control of their respective fund).
Some might wonder if cashing out the 401(k) funds coming to them as part of a divorce proceeding is an option. Under normal circumstances, such an action results in an early withdrawal penalty (as much as 10% of the disbursement amount). However, according to information shared by SmartAsset.com, one may request permission from the court to allow for an early withdrawal (without penalty) in their QDRO.
Keeping the full 401(k)
There may also be instances where the spouse contributing to the 401(k) wants to keep the entire fund. This may be an option, yet in order to do so, they would likely need to convince their ex-spouse to forego their interest in it. This may require them to relinquish their interest in another marital asset of comparable value in exchange.