Getting divorced is never easy, even for couples that have not been happy in their marriage for quite some time. Divorce can be extensive, emotional, stressful and downright nasty in some instances. When it comes to dividing property, many divorcing couples wonder how property is divided, including a 401k. So, how is a 401k divided in an Ohio divorce?
It is not always the best idea to divide a 401k during a divorce. But, if you so choose, a 401k can be divided equally among a divorcing couple. This is done by filing a Qualified Domestic Relations Order. This document, which is legally binding, explains to the administrator of the 401k how the assets are to be divided and that they are being divided due to a divorce.
When getting a divorce, it might be possible to avoid the tax penalty if you need to withdraw cash from the 401k. You can avoid the early tax penalty by withdrawing the money as part of the divorce decree and by using the Qualified Domestic Relations Order.
It is not recommended to divide a 401k or withdraw from it during a divorce because of the income tax obligations. Withdrawing money from other types of accounts, such as an IRA, will not cost you any money. This money will be given to you dollar for dollar, while money from a 401k will be taxed, leaving you with less than what you withdrew.
Should you decide to split the assets in a 401k during divorce, you have a rollover option available. You can roll the portion of the 401k that has been awarded to your former spouse into an IRA for that spouse. But, there is a catch here. You can only do this if you are older than 59 and a half or have already left your company. When choosing the rollover option you remove the portion for your spouse and he or she does not face any of the tax penalty associated with a 401k.
Dividing a 401k in an Ohio divorce is very complicated. Educate yourself prior to making any decisions.
Source: Findlaw, "Inheritance and Divorce," accessed Feb. 20, 2017