People may go into divorce proceedings in San Mateo believing that they know what to expect, yet often end up being surprised by many of the issues they end up having to deal with. One of these is the division of a 401(k). Many may not view a 401(k) as a marital asset (given that its funds come largely from one spouse’s individual efforts). Yet marital income is the source of those funds, thus the determination that contributions made to a 401(k) during a marriage are marital assets.
Having made that determination, the inevitable question that arises is how to divide up those contributions during property division proceedings.
Keeping one’s full 401(k)
The spouse contributing to the 401(k) may seek to avoid its division altogether. According to the 401(k) Help Center, one can do this by proposing to their ex-spouse that they relinquish their claim to a portion of the contributions in exchange for giving up their stake in another marital asset of equal value. This may seem like an easy decision, yet it may be more complicated than one realizes. When considering such a proposal, the court values one’s portion of the contributions at their potential future value (taking into account growth from investment returns and interest). Therefore, one trying to keep their full 401(k) might have to give up more in exchange than they anticipated.
Cashing out one’s portion of a 401(k)
If the contributing spouse keeping the entire 401(k) is not an option, the court typically divides the contributions equally by splitting the 401(k) into two separate accounts with each spouse then controlling their own funds. Both sides also have the option of cashing out their portion. This typically nets a penalty, yet per the website SmartAsset.com, this is possible without incurring a penalty during divorce proceedings.