Brooklyn Divorce Attorney Protects Your 401(k)
New York lawyers fight to secure your retirement assets
You might have imagined retiring with your spouse to live out your golden years, but divorce requires revisiting those plans and asking a number of questions. What happens to the money you put aside in a 401(k)? How much are you entitled to? Will there be enough to meet your goals within your present timeline? The family law attorneys at Goldberg Sager & Associates understand the importance of protecting a 401(k) in divorce. We want you to continue to enjoy the standard of living you’ve achieved, so we work tirelessly to protect your right to an appropriate portion of all retirement accounts.
How 401(k) plans are typically divided in a New York divorce
New York applies the rule of equitable distribution in a divorce, which means that each spouse is entitled to a fair share of the marital estate but not necessarily to a 50-50 split. Most 401(k) plans are considered marital property, at least in part, and so are subject to equitable distribution. When distributing assets, the court assesses how much was saved during the marriage and determines what percentage of that portion each spouse should receive.
What happens if retirement assets were held prior to marriage?
Amounts saved in retirement accounts prior to marriage are generally considered separate property. If the plan consisted of cash assets, you could simply subtract the value of the account at the time of the marriage and adjust for interest. But most 401(k)s are comprised of investments that fluctuate. If you got married when stocks were down and then they rebounded during the marriage, that growth might also be separate property. Because the determination can be complex, it’s important to retain an experienced Brooklyn divorce attorney who can capably protect your interests.
Ways to protect your 401(k) in a divorce
The best course of action is to plan ahead, even prior to marriage. You can execute a prenuptial agreement designating your 401(k) as separate property. This is appropriate for two-career couples who have their own employment-related retirement plans. After marriage, you can create a postnuptial agreement.
During divorce, your options are more limited. You can attempt to negotiate a marital settlement that allows you to keep the 401(k) in exchange for other marital property.
Unless you’ve reached the plan’s specified age of retirement, cashing out and dividing assets is bound to be wasteful. The IRS imposes penalties for early disbursements and the plans themselves often have complex administrative rules with negative impacts.
Understanding the importance of QDROs in dividing 401(k)s
Since dividing a 401(k) in a divorce could be considered a premature withdrawal, courts issue a qualified domestic relations order, or QDRO, creating two accounts that operate independently until it’s time for each owner to receive normal disbursements.
What happens if you have taken a loan from your 401(k)?
A loan is a debt, which is considered property under New York divorce law. The question is whether that debt is separate or marital property. If you took out the loan prior to marriage, that debt is most likely separate property. If you borrowed during your marriage, the debt could be marital property in such situations as the following:
- You used the money to purchase assets that you held jointly with your spouse.
- You put the money into acquiring or improving marital property, such as a vacation home.
- You repaid the loan with marital funds.
If you spent the 401(k) loan proceeds on separate property but repaid the plan using marital funds, you may have to account for those funds as part of equitable distribution.
