How to Protect Your 401k in a Divorce
401ks and Divorce in Connecticut and concept of “Equitable Distribution” in CT Divorce Law
A badly managed divorce can threaten your retirement security by giving your spouse an undue allocation of your 401k and other retirement investments. At Needle|Cuda in Westport, our Connecticut family law attorneys have handled this issue innumerable times. We know how the law applies to division of retirement savings in divorce and we understand the nuances of exceptional cases. Whether you are the earner whose labor funded the retirement account or you are a dependent spouse whose contributions are less tangible, we will fight to preserve your financial interests.
401ks are Considered Marital Property in Connecticut whether accumulated before or during the marriage
In a divorce, the retirement accounts of either spouse, including 401ks, IRAs and pensions, are subject to Connecticut’s equitable distribution system, whether they were earned before or during the marriage. The court has broad discretion in dividing the assets fairly, though not necessarily equally. Connecticut statutes provide the court with factors to be considered, including each spouse’s contributions to the marriage, both economic and otherwise. If the spouses have entered into a valid premarital agreement that specifies retirement accounts are separate property, the agreement may be enforced during the divorce proceeding. Otherwise, it is our job as your attorneys to demonstrate your entitlement to a fair share of the account.
Using QDROS (Qualified Domestic Relations Orders) to avoid early withdrawal tax penalties in 401ks and Divorce
There are penalties and taxes imposed on early retirement fund withdrawals, so disbursing funds to pay one spouse, or dissolving the account and dividing the funds, can unduly deplete the asset. To solve this problem, the law allows division of certain retirement assets without penalty with a special court order, called a qualified domestic relations order, or QDRO.
A QDRO instructs the plan provider to assign assets from the account to the parties according to the proportion or the dollar value the court decides. If the transfer is made pursuant to a divorce and all the funds are still held in a deferred tax account, there is no disbursement and no taxes accrue and no penalty will be assessed. Upon division by a QDRO, each party can receive his or her separate share of the retirement account as a separate retirement account, with all the usual rights and restrictions.
“Equitable Distribution” of Pensions and other Retirement Plans in Connecticut Divorce
There are other ways to protect your retirement savings upon divorce. One spouse may be given a larger share of the retirement proceeds which is offset by receiving a lesser share of other marital assets. The court could order a lump sum, based on present value, to be paid immediately to the nonearning spouse, allowing the earning spouse to keep the account. If a pension has vested, it can be considered as income and utilized for support purposes. If a pension has not vested, the analysis will likely be a little more complicated, but that pension still may be subject to division in the divorce. A Connecticut divorce lawyer at our firm can explain all your options with respect to your retirement savings.
Contact our Westport divorce lawyers to protect your 401k under CT Divorce Law
Needle|Cuda in Fairfield County helps Connecticut clients obtain a fair share of retirement savings during divorce. In all matters, we provide highly responsive service and effective representation focused on positive results. To schedule a consultation, call us today at 203-557-9500 or contact our Westport office online.