When seeking a divorce, there are many questions one may have. Maybe you’d like to know how to protect assets in a divorce, or you’re looking for a qualified divorce lawyer. Today, we’ll look at the topic of 401(k)s, what happens to a 401(k) in a divorce, and what you can do to protect it. Let’s dive deeper into this subject.
Is A 401(k) Similar To A Pension?
No, as most retirement accounts are 401(k)s or individual retirement accounts (IRAs) and are similar to investment accounts. With a 401(k), you and the employer pay into an account traditionally invested in the stock market (with an IRA, you make your own investments independently). When you retire, the account is yours to do with as you wish. You could slowly take money out over many years or cash it out entirely.
Though sometimes you can get a pension through a private employer, these are rare today. Typically, pension plans are received by people working for the government, be it federal or local.
You and the employer pay into the pension plan during your employment. Upon retirement, you receive a fixed monthly payment for the rest of your life. Divorce spouse pension rights are a topic we cover further at the article linked above.
How Are 401(k)s Divided In A Virginia Divorce?
Like many states, Virginia is an equitable-distribution state where property is divided equitably during a divorce. In other words, the state divvies the property up fairly, though not necessarily 50/50, as in some other states.
The division of a 401(k) does not depend on how much money there is, but more on when the spouse accrued cash into the account.
Before the marriage, any money placed into the 401(k) account is separate property under Virginia law. Any money put into the 401(k) account during the marriage is classified as marital property and divided equitably, up to 50% of the value accrued.
Does My Spouse Automatically Get Half Of My 401(k)?
Answers to these types of questions are rarely cut and dry when it comes to divorce. For example, the spouse can get up to 50% of the 401(k) accrual from the start of the marriage. However, this percentage split of the money is not automatic. The Commonwealth of Virginia takes various factors into account before deciding how much of the money a spouse is entitled to.
Let’s say you are a woman who had a 401(k) account that you contributed to during the marriage. But then you had kids and decided to become a full-time homemaker and stopped working outside the house.
If you get divorced, your earning potential will probably be less than your continually-working spouse. Therefore, a judge may decide to allow you to keep some or all of the money in your account because this would be more equitable or fair under Virginia law.
If you are the husband who kept working in this scenario, a judge may decide to grant your spouse the complete 50% of the amount accrued during the marriage to help her become independent in her new life.
Conclusion
The scenarios mentioned above are just a few of the situations you might have to consider when dividing assets in a divorce. That said, these are not guaranteed outcomes because each divorce is unique. That’s why it’s crucial to work with a qualified divorce attorney to assist you during this difficult time.