Dividing 401(k) assets in divorce can be an expensive minefield

Personal Finance

For the recipient of the 401(k) funds, it’s important that you do not agree to a change of beneficiary before the divorce is final. As long as you remain married, account owners cannot name anyone other than a spouse without your approval, Zuraw said.

The reason this matters is that if your soon-to-be ex passes away before the divorce is final, you might no longer have any rights to the 401(k).

Additionally, make sure that if the intent is for each spouse to get, say, 50 percent of the 401(k) assets, the divorce decree and QDRO state that percentage instead of a fixed amount.

Here’s why: Say there’s $100,000 in the 401(k) and the non-account-owner is to receive 50 percent. If the QDRO states the receiving spouse should get $50,000 — which represented 50 percent at the time it was written — and the account posts gains or losses before the transfer is made, $50,000 no longer represents 50 percent.

Also, be aware that if you are headed for bankruptcy, assets in 401(k)s are protected in that process, while IRAs are fair game for creditors. If this is your situation, consider leaving your share in the 401(k) plan (in your own account, of course).

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