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Michigan Family Law Blog

Thursday, February 4, 2021

How Are 401Ks Handled in a Divorce?

What happens to a person’s 401(k) account when going through a divorce can determine whether they will have enough money when they retire one day. You need to make sure that you do not have to give your spouse more than his or her fair share of your account, and that you get everything that you deserve from their account. A Michigan divorce attorney can protect your financial rights with regard to the 401(k) accounts and other assets.

Divorce can be financially devastating, both in the short-term and the long-term. The same level of combined income has to support two households instead of one. A change in marital status can affect how one files income taxes and eligibility for benefits like health insurance. Most people tend to focus their attention on how to make ends meet from one paycheck to the next, but it is equally important to safeguard your retirement finances.

Many people live for 15 or 20 years or more after they retire. If you contributed diligently to your retirement account while your spouse frittered away that amount of money from their paycheck, it might not seem fair that you have to give away half of your retirement account when you divorce. Nonetheless, if the account is marital property, you might have to swallow that bitter pill.

Marital and Separate Portions of Retirement Accounts

Some portions of a retirement account could be separate property, which means that you get to keep that part for yourself. Courts usually do not divide separate property in divorces. There are, however, some exceptions. Your Michigan divorce attorney can explain those situations to you.

If you worked at a job before getting married and had an old retirement account that you did not contribute to after getting married or rollover into a retirement account with your subsequent job, the old retirement account and its earnings or growth are separate property. Your spouse likely has no claim on that asset.

The marital portion of your retirement accounts includes contributions to the account made during the marriage, as well as the growth and earnings on those amounts. If you rolled over old accounts into your current retirement account, it will be necessary to calculate the marital and separate portions of the asset.

How Courts Divide 401(k) Accounts in Michigan Divorces

Judges and parties have several options when dealing with the distribution of retirement accounts in Michigan divorces. Some of the options include:

  • If both spouses have 401(k) accounts and the value of those accounts is about the same, each party could keep their 401(k) intact and leave the other spouse’s account alone.
  • When there is a difference in the value of the accounts, the party with the higher 401(k) balance could take on a greater amount of debt, or the party with the lower balance could receive other marital assets equal to the amount of the disparity.
  • The parties could use a Qualified Domestic Relations Order (QDRO) to divide a 401(k) account, creating a separate 401(k) account for the non-employee spouse.
  • If the parties want to pay off debts, they could liquidate the 401(k) account. Please note that this option will result in penalties and taxes that can erode the balance of the account.

You might have additional alternatives, depending on your situation. A Michigan divorce attorney can evaluate your circumstances and determine the best approach for your divorce. Contact us today.


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