What to Do With Your 401k After Divorce

by Neal Frankle, CFP ®

If you have serious marital problems, you have to understand – before you call your divorce lawyer – what divorce will do to your 401k. The reality is there are some issues over which you have no control. But there are things you can do that will have a significant impact on yourself and your family.

If you are in the process of divorce and you own a 401k, there are two issues you are likely very concerned about. First, who will be the 401k beneficiary on your retirement account? The second and more important question is, who gets the money after the divorce?

The beneficiary issue is pretty straightforward. Your spouse is probably the beneficiary on the 401k account by virtue of being your spouse. The only way he wouldn’t be the beneficiary is if he signed off on a beneficiary designation form to remove himself. That likely didn’t happen. But once you are divorced, he won’t be your spouse anymore and that means you can name anyone you want as beneficiary. (We’ll come back to this in a moment.)

In terms of who gets the money, you don’t have a lot of control over that. When you go through a divorce, your spouse’s attorney will request a QDRO – Qualified Domestic Relations Order. This is a document that is issued by the court and directs how retirement assets get split up. Once the court issues the QDRO, your spouse can take the document to your employer and use it to demand his portion of your 401k. Then he’ll probably do a tax-free IRA rollover to his own retirement account.

The most important issue that you face once the divorce is final is what to do with your beneficiary election. This is an often overlooked issue and it can be a critical mistake. If you don’t change the beneficiary election form, your spouse will still get your money if something happens to you – even after the divorce.

And if you have children, you also have to be very careful. Naming your children as beneficiaries can be a great idea. But if you’re not careful, your prior spouse might get his grubby hands on the money anyway. That’s because if something happens to you while your children are still minors, your spouse may end up controlling the money.

How do you avoid that?

In most cases, it’s pretty simple. You can name an adult (any adult you like) as the responsible party. If you do that, you can make sure your creep ex-spouse doesn’t get his/her hands on your money.

Make sure you check with your attorney and the custodian on the wording of this. How you complete your beneficiary form for your 401k or IRA is extremely important. And when you are divorced and have minor children, this is much more important. Take the time to ask the right questions and make sure these issues don’t come back to haunt you.

I met a man named Pat who was getting divorced about two years ago. Unfortunately, he was also dying of cancer at the same time. He was worried because he wanted to make sure his children, not his spouse, would receive his 401k money after he died. The only thing he could do was to get that divorce final before he died. That way, he had the sole authority to change the beneficiary designation form.

In that case, Pat did get the divorce finalized shortly before he passed away. Even though you hopefully aren’t ill, it is still just smart business to get that beneficiary form changed as soon as you can.

If you’ve gone through a divorce, what difficulties did you encounter when it came to your retirement accounts?



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