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Handling 401(k) accounts in Pennsylvania divorces

When people have been married for a long time, they often have built up significant assets, including such things as retirement accounts. When they divorce, 401(k) accounts are often considered to be a part of the marital estate, and thus are subject to division.

The portion of a 401(k) account that accrued during the marriage is divisible. Although a withdrawal prior to the age of 59 1/2 would normally subject the account holder to an early withdrawal penalty, the penalty does not apply when the withdrawal is made pursuant to a court's qualified domestic relations order.

The plan administrator will verify the QRDO to ensure it has been properly drafted. If it has been drawn incorrectly, the penalty may still apply. The recipient spouse under a QRDO who takes the money in a cash lump sum will be responsible for paying associated taxes. For that reason, many recipients choose to leave the money in the 401(k) account or roll it into their own new or existing individual retirement account.

Understandably, many people do not want to divide their retirement accounts as doing so could limit the amount available later in life. People are sometimes able to work out arrangements with their spouses to exchange rights to other assets or property for the right to retain the 401(k) account balance. Many people may be able to get help to negotiate such an agreement by seeking the assistance of an attorney who has experience with high asset divorce cases who can strive to negotiate a comprehensive settlement agreement that will cover these and other matters.

Source: 401k.org, "401(k) and Divorce," accessed on Jan. 9, 2015

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