I frequently field questions about the interplay between a 401(k) and Connecticut divorce.

For example, if you are getting divorced, is your spouse’s 401(k) an asset you should share when the marriage is dissolved?

If you don’t work for your spouse’s employer, can the retirement account be split?

The answer to both of these questions is yes.

The below is an excerpt from a well written article about this topic.

Other than an exemption we’ll talk about in a moment, federal law does not permit an employee’s 401(k) to be assigned to someone else, even a spouse. The rationale? To ensure that the employee’s retirement benefits actually go to the employee when he or she retires.

But the law permits an exception for an “alternate payee.” The proper procedures must be followed to comply with ERISA. And if they are, the local divorce (or family) court can order a distribution to the spouse.

Once the divorce or family court determines that the 401(k) will be split between the spouses, a special order must be drafted and approved by the court. The order is called a QDRO, which stands for qualified domestic relations order.

A properly drafted QDRO is the mechanism that is used to transfer assets from the owner of the 401(k) to his or her former spouse. It is the only way a former spouse can receive a nontaxable assignment of all or part of a spouse’s 401(k) plan.

QDROs also are used for assigning pension assets.

Normally the portion of the employee’s 401(k) that goes to the spouse is transferred into the spouse’s individual retirement account (IRA) to avoid a taxable distribution. For example, an employee’s 401(k) balance of $1 million might result in 1/2, or $500,000, going to the spouse. The spouse’s $500,000 is transferred to his or her IRA, and the remainder stays in the 401(k). There is no income-tax consequence to either spouse.

You don’t want to agree to a property settlement without first quantifying the value of your spouse’s 401(k) account. When valuation is an issue, you can request a valuation from the plan administrator or call in a qualified actuary. And when your lawyer presents you with the divorce settlement, satisfy yourself that pension and 401(k) assets are dealt with adequately. Because divorce is a time of disruption, take your time to understand what is being presented.

Source: Julie Jason: Don’t overlook a 401(k) in a divorce

I represent clients in divorces throughout Fairfield County including Easton, Fairfield, Monroe, Trumbull, Stratford, Bridgeport, Westport, Weston, New Canaan, Wilton, Norwalk, Darien, Stamford and Greenwich.

Contact me online or call my Fairfield office at (203) 259-5251 or my Stamford office at (203) 356-1475  if you have questions about a 401(k) and Connecticut divorce.

 

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