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ESTATE PLANNING AND ELDER LAW FOR EVERYONE.

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Keeping one’s full 401(k) in a divorce

| Oct 18, 2020 | Family Law | 0 comments

Those people preparing for a divorce in Alaska understand that the dissolution of their marriages will almost certainly impact their retirement plans. Yet they may believe that impact only to apply to who they will spend those years left. The fact that their 401(k) account may be subject to property division often comes as a surprise.

This often prompts many of those facing the prospect of losing a portion of their 401(k)’s to try and find a way to retain their full value. Doing so may be possible, yet not without making some concessions.

Convincing an ex-spouse to forgo their stake in a 401(k)

In order to keep their full 401(k), one will have to ask their ex-spouse to give up their interest in the contributions made to that account during their marriage. That may prove to be a big ask given the many options a non-contributing spouse has when dealing with the portion of a 401(k) owed to them (including cashing it out, which the website SmartAsset.com reports will not merit an early withdrawal penalty in the event of a divorce). Thus, to facilitate their request, one wanting to retain the full value of their 401(k) will likely have to agree to relinquish their stake in a marital asset of comparable value.

Determining what is in one’s best interest

Before one commits to going forward with this action, however, one should consider what they could have to give up. According to the 401(k) Help Center, a non-contributing spouse asked to give up their claim to 401(k) assets can ask that the reciprocal sacrifice equal the future value of those assets (after growing due to investment returns and interest). Depending on how close (or far away) one is from retirement, making such an ask may ultimate prove to be financially unwise.

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