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How to divide a 401(k) in a divorce

On Behalf of | May 9, 2024 | Divorce |

Oklahoma law requires that assets acquired in a marriage be divided in an equitable fashion during divorce proceedings. If you or your spouse have a 401(k), it may be considered a marital asset that must be accounted for in a final settlement. There are specific steps that must be taken to ensure that it is divided properly.

Obtain the tax letter

A qualified domestic relations order (QDRO) allows a 401(k) to be split without incurring a tax penalty. Otherwise, you might be hit with a 10% early withdrawal penalty in addition to income taxes on the amount taken out. However, the QDRO specifies that the withdrawal is pursuant to a divorce and should not automatically trigger a taxable event. It’s important to note that the QDRO only applies to a 401(k) and would not be used to divide an IRA in a divorce settlement.

How to avoid taxes

Getting a QDRO is only the first step in ensuring that you receive your portion of a 401(k) without incurring a tax bill. You must also ensure that it gets transferred directly to an IRA in your name. Otherwise, any money that you receive will be subject to income taxes. However, you won’t need to pay the 10% early withdrawal penalty even if you are younger than 59 1/2.

In addition to a 401(k), you may be entitled to other assets in a divorce settlement. These assets might include funds in a bank account or the value of a car. You may also receive alimony, child support or other resources depending on the facts of your case.