When you’re going through a divorce, you might face a contentious battle with your spouse over who should keep which property. However, most people commonly fight over a house or car and forget about other important assets like 401(k)s.
Sometimes, a 401(k) is the biggest asset a person has. You spent your life saving for your retirement but could end up sharing part of the funds with your spouse after finalizing the divorce. Retirement accounts are often treated as marital property. That means that even if something is only in your name, it belongs to both you and your spouse.
It’s always best to try to divide property during divorce proceedings without involving the court. If a judge needs to make these decisions for you, you could walk away without your fair share of the 401(k) account. You relinquish your control over the outcome of the case if the court must resolve your property division dispute.
It’s critical to protect your rights and interests when going through a divorce in North Carolina. Below is an explanation of state laws regarding 401(k) division and what you should do to prepare yourself for the legal proceedings you’ll encounter in your divorce.
Determine the Value of the 401(k)
Whether the 401(k) is in your name or your spouse’s name, you need to determine the amount to be divided between the two of you. That doesn’t necessarily mean the total balance in the account. Some retirement funds are only subject to division if they meet specific requirements.
If you opened a fully vested defined-contribution 401(k) account while you were still married and used marital property to fund it, the total balance would be subject to equitable division. However, if one of you opened the account and started contributing to it before marriage, determining how to split the money is a bit more complex.
Factors Used to Determine Equitable 401(k) Division
If you and your spouse can’t agree on how to divide a 401(k) plan, you might have to take the matter to court. Judges often use their discretion to decide what’s most equitable during property division.
“Equitable” doesn’t necessarily mean a 50/50 split. If one person makes considerably more income than another, the lower-earning spouse might be given a larger share of the 401(k) funds.
The judge can consider a range of factors when making their decision, such as:
- Whether the 401(k) plan is marital or separate property
- The age of each spouse
- The general health of both parties
- Amount of income each person earns
- Duration of the marriage
- Direct contribution by one spouse to increase the value of the asset
- Any obligations from a previous marriage, such as paying child support or spousal support
- Contributions one party made to further the other’s career or education
- Terms defined in a prenuptial agreement
If you want to avoid having a judge determine how much of your hard-earned 401(k) funds you can keep, you should attempt to resolve this dispute with your spouse outside of court. You might be able to come to a mutually beneficial agreement.
For example, some people will negotiate to give up the house or marital vehicle in exchange for their retirement account. Others will agree to forego their share of the 401(k) funds in exchange for paying less in spousal support. Whether you settle the matter amicably or need to argue your case in front of a judge, you should hire a lawyer to protect you during the process.
Change the Beneficiary on Your 401(k)
Some divorcing couples will argue for months about who deserves all or some of the 401(k) plan. However, the winning party might forget to change the name of the beneficiary.
Many people want to protect their spouses if something happens to them. They usually do this by adding their spouse’s name as a beneficiary to their retirement accounts.
If you get divorced and forget to change the beneficiary on your 401(k), your ex could receive the funds when you die even though you’re no longer married. You should take immediate action to take your spouse’s name off the account. It’s as simple as calling the plan administrator and completing a new beneficiary designation form.
You could add a child’s name instead, or a close relative you want to access the asset once you pass away. However, the decision to remove your ex’s name is entirely up to you. If you still want them to be taken care of when you’re gone, you can keep them as a beneficiary on the account.
If you’re going through a divorce and want to learn about your legal options for dividing the funds in a 401(k) plan, contact Marshall & Taylor PLLC immediately. We can provide the legal services you need to protect your rights, so you can leave the marriage with the assets you want and deserve. We will remain by your side from start to finish of the process to offer the support and guidance necessary to get you through this challenging time in your life.