When a couple divorces in Missouri, they will need to divide their property, including real estate and bank accounts such as retirement savings accounts. Portions of an individual’s 401(k) account may be awarded to a former spouse and dependents as part of the divorce agreement. If this occurs, a qualified domestic relations order will be issued by the court defining how the account will be divided and who will receive the funds. A QDRO is a court decree, or order, that identifies the recipient of the assets in a 401(k) account.
A valid QDRO must be created correctly and verified in order to be considered valid. If withdrawals are made from a 401(k) account to satisfy a divorce agreement, the withdrawal will not be subject to the standard 10 percent federal income tax penalty for early withdrawal. However, it is possible that the federal income tax penalty will be imposed if the QDRO is not set up correctly.
An individual who has received funds from an ex-spouse’s 401(k) account might consider rolling it into an IRA account. An alternative is to create a separate account within the 401(k) plan. However, the individual may not be able to withdraw the funds or add to them until the former spouse withdraws their funds.
A lawyer may review a QDRO to ensure that it is set up correctly and will not result in a tax penalty. In addition, a lawyer may assist with other aspects of property division, high-asset divorce and negotiating a fair divorce agreement. If a couple cannot come to full agreement on property division, it may be necessary to litigate contested issues in court.
Source: 401k.org, “401(k) and Divorce,” Accessed on Jan. 15, 2015