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Splitting a 401(k) during a Massachusetts divorce

In many cases when a couple files for divorce, the court will decide how the couple divides their assets. If the court decides to split one party's 401(k) plan with the other party as part of the property division order, the party whose name is on the plan should be careful to ensure that the court issues a valid qualified domestic relations order stating the details of this division.

A QDRO must include specific elements for it to be valid, including the name and address of the person on the plan along with the alternate payee. It should also detail how the administrator should split the funds, including how he or she should calculate it, and how many payments the alternate payee should receive over what period of time. The most important aspect of the order is an identification of the plan.

The plan administrator should always notify the plan holder and the alternate payee when he or she receives the order and detail the process from that point. The administrator has 18 months to validate the order and must then notify both parties of the validity of the order. If the administrator does not do this properly, the IRS may charge the plan holder a 10 percent early withdrawal fee on any amount that the administrator distributes to the alternate payee.

Any asset that the court considers marital property is subject to division during the divorce proceedings, and there may be income tax consequences as a result. A family law attorney may be able to explain to a client how the court may divide the assets and what other issues may arise.

Source: 401k.org, "401(k) and Divorce", December 24, 2014

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