If you are going through a divorce, one of the questions looming over your head is, how do we separate our retirement funds? This is an important question because its something you may have both contributed to and invested in.
Identify the value of the asset
The first step to do when splitting an 401K or an IRA is identifying the value that the asset had at the date of separation. That’s the date when you two were literally living under separate roofs and separate households, because that’s what the court’s going to look at in determining when to split it. Until the separation occurs, it’s all still marital, so we have to take a sort of snapshot of that date upon separation and figure out the split from there.
Figure out how much was marital
Once you quantify what it’s worth is at that time, then you have to move on to figuring out how much of it was marital. North Carolina is a marital property state, which means that things acquired during the marriage belong to the marriage. Therefore, they have to be split accordingly. There may be someone who had a 401K for 10 years prior to the marriage, then were married for five or six years. So you may have 10 years of pre-marital 401K and five years of marital 401K and you have to figure out how much the value of the marital portion is by itself. This is because the premarital portion doesn’t get split. It can get a little complicated, because sometimes you have to figure out, that 10 years of premarital portion has grown during that time, but that growth doesn’t belong to the marriage. That growth is separate. So, you have to sometimes split those out. Sometimes you need to bring in an expert, or sometimes it can figure it out via shares.
Decide on how to Split it
Once you are able to figure out the value that belongs to the marriage, then you have to figure out how to split it. It can be split either equally or unequally, given certain things or findings. When that percentage is decided, you split it with a Qualified Domestic Relations Order, also known as a QDRO. This is a court order that will tell the plan administrator to take the money and put it into two separate accounts, so that it’s like you two would have two separate 401Ks. One 401K becomes two and you each would individually decide what you want to do with that. Separating out a 401k or IRA is one of the most difficult things to do during a divorce, and you should absolutely speak to a qualified family law attorney like our lawyers at Emblem Legal. To set up a consultation with us, call 704-248-7683 or click here.