Dividing property and assets during a divorce is seldom straightforward, especially when you own a home together or have joint bank accounts. In addition to the shared accounts, your retirement accounts through your job may also be subject to division. To help you understand what happens to your 401k in your divorce, our divorce attorneys in New Bern, NC are breaking down how equitable distribution laws may affect your nest egg.
What Is Equitable Distribution in North Carolina
First, it’s important to understand that North Carolina is an equitable distribution state. What this means is that when the court determines a divorce settlement, they attempt to determine a fair division of marital property, not necessarily an equal one.
The court will look at several factors to determine how to divide property, including:
- Income and earning potential of each spouse;
- The duration of the marriage;
- Contributions of a spouse to the household;
- Contributions of a spouse to the education or career of the other spouse;
- Health and wellbeing of each spouse;
For example, if one spouse was the primary parent and home-keeper while the other spouse worked, the court may award more assets to that spouse because their earning potential is decreased. Similarly, of one spouse worked and supported the household while the other finished their degree, the court will factor this in, also.
Understanding Marital Property
Marital property is any property or assets that were acquired during the time of the marriage. It also includes separate property that is placed into a joint account, such as when two spouses combine the savings accounts from before their marriage into one account when they get married.
This means that much if not all of the money placed in a 401k or other retirement account is considered marital property and is subject to division.
Common Solutions to Dividing 401k Accounts
How a 401k is divided is often determined by the rules of the account itself. Some plans divide the earnings by a percentage while others separate it by shares, and some allow early withdrawal to distribute the spouse’s portion at the time of divorce, others require them to wait until retirement or draw heavy penalties. Researching your plan and working with a divorce attorney who is experienced in the division of retirement accounts allows you to have a better understanding of options. The most common solutions include:
- One spouse keeping their 401k, and the other spouse receives marital assets equaling a fair division. While it is the least complicated, long-term taxes and long-term value of the assets must be considered.
- Split the 401k using a court-mandated Qualified Domestic Relations Order to create an alternate payee to receive a portion of the account.
- Liquidate a portion of the account and provide it to the spouse in one sum.
- If you or your partner is over 59 years of age, you can roll a portion of the 401k into an IRA for your ex-spouse.
Consult with a Divorce Attorney in New Bern to Protect Your Assets
Asset and property division is incredibly complicated in a divorce, especially when there are retirement and investment accounts to consider. At Irons & Irons, P.A., our divorce lawyers are experienced in high net worth divorce and complicated finances and strive to ensure our clients receive fair and favorable outcomes that allow them to move forward with confidence and security. Reach out to us today at 252-320-7399 or fill out the form below to schedule a consultation.