One of the most common assets that inspires conflict during divorce is a 401(k) retirement account. Many people wonder whether a non-working spouse—who may not have contributed to their family’s 401(k) during their marriage—has a right to a share of those funds in the event of a divorce.
Dividing retirement accounts can be especially confusing for couples where one spouse was the primary wage earner while the other stayed home to manage the household and/or care for children. The working spouse may feel that their contributions to the 401(k) should remain entirely theirs, but in many cases, the courts take a broader view of what constitutes marital property.
Understanding Marital Property
In most states, property obtained during the marriage is considered “marital property” and is subject to division in a divorce. This includes earnings, real estate, savings and retirement accounts like 401(k)s. Even if one spouse was the primary earner and the other did not work, the 401(k) contributions made during the marriage are still considered marital property. This means the non-working spouse may have a claim to a portion of the funds accumulated during the marriage.
Division of 401(k) Funds
The process of dividing 401(k) funds typically depends on the laws of the state where the divorce is taking place. For example, in equitable distribution states, property division is based on what is considered fair, which is not necessarily always equal. A judge can consider factors such as the financial and non-financial contributions of both spouses, the length of the marriage and the earning potential of each party. This means that while a non-working spouse may not receive 50% of the 401(k), they could receive a significant share, particularly if they made substantial contributions to the household in other ways, such as caring for children or maintaining the home.
Qualified Domestic Relations Order (QDRO)
To divide 401(k) funds, a special court order called a Qualified Domestic Relations Order (QDRO) is required. This document allows the 401(k) administrator to release a portion of the account to the non-working spouse without triggering penalties or taxes, provided the transfer is done in accordance with IRS regulations. A QDRO is an important step in ensuring that the non-working spouse receives their rightful share of the retirement account.
In divorce proceedings, a non-working spouse may be entitled to receive a portion of the 401(k) funds accumulated during the marriage. While the exact amount may depend on various factors, including a specific state’s laws and the couple’s financial circumstances, the principle remains the same: both spouses generally have a claim to assets earned during the marriage. For those going through a high net-worth divorce, seeking legal guidance can help ensure their financial interests are protected.
