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Splitting 401(k) assets in a divorce may be complex

It's widely believed that divorcing couples will each receive half of the family assets although, in most cases, they do not get identical assets but equivalent ones. In California, there must be a distinction made between community and separate property with only community property being subject to division. Additionally, 401(k) plans have different rules as to how the assets are treated in a divorce. Family law judges have wide discretion in establishing final property division orders.

The best way to divide marital assets is for the couple to reach a marital settlement agreement. Family law experts explain that if the agreement is fairly arrived at with each spouse advised by counsel, the judge will likely approve the terms without the court's involvement. The judge will, however, need to sign a Qualified Domestic Relationship Order to direct the 401(k) plan administrator on how to release the funds.

Nonetheless, the basic rules of the 401(k) cannot be changed to accommodate the couple's agreement or the judge's preference. For instance, some plans split the assets in shares and some in percentages, and most plans will not permit distribution to one spouse while the other continues to work. Even where the plan allows for a distribution, if the spouse taking the distribution is younger than 59.5 years old, there may be a 10 percent early withdrawal penalty in addition to the amount taxed as regular income.

A family law attorney may help clients understand the issues involved in a complex divorce. Property division, child custody, child support and spousal support, where appropriate, should be handled in a manner that respects the rights and responsibilities of all the parties.

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