How marital property law determines 401(k) division

When divorce ends a marriage, many assets get divided among the former spouses. That may include 401(k) retirement plans, but they’re not necessarily divided on an equal split. New York, like most states, is an “equitable distribution” state, which means the court decides how each asset is divided rather than using a simple 50/50 division.

Summary descriptions are important

New York domestic relations law considers any financial investments made prior to a marriage to be the sole property of the spouse who made those investments. That includes a 401(k) retirement account, but many people continue investing in accounts throughout the marriage. That can complicate a 401(k) division.  If you can provide proof of the funds invested prior to the marriage, this can be considered your separate property.  In some instances, you can recover the growth on your premarital portion of the investment.

A qualified domestic relations order is needed to divide a 401(k) assets or other qualified account.

Potential tax implications

If you choose to cash out a 401(k) in order to distribute funds to a divorcing spouse, that could trigger a significant tax liability. A transfer via a Qualified Domestic Relations Order is tax between spouses. An experienced family law attorney may help you determine which assets are likely to be divided during a divorce and how it might affect any relevant 401(k) accounts.