What Happens to Your 401(k) after Divorce
June 16, 2025
Ending a marriage is hard enough on its own, but figuring out what happens to your 401(k) after divorce can make it even more complicated.
This is because 401(k) accounts cannot simply be separated like other marital property.
Ben Storey, director, senior retirement product manager of Retirement Research & Insights at Bank of America, explains, “Taxes and legal implications make this much more complicated than simply dividing funds down the middle, and there’s a lot to consider.”¹
What happens to your 401(k) account after divorce is dependent on several different factors.
Keep reading to learn the ins and outs of what happens to a 401(k) after divorce.
Understanding 401(k) Division in Divorce
401(k) contributions made while married are considered marital property, which means they are marital property that must be split between the former spouses.
According to the IRS, “If a plan participant gets divorced, his or her ex-spouse may become entitled to a portion of the participant’s retirement account balance. Depending on the type of plan and the amount of benefits, the ex-spouse may have immediate access to his or her portion of those assets or at some point in the future (usually upon the participant’s retirement or death).”²
The former spouse will negotiate how the 401(k) account will be split and distributed, or a court will do it for them.
However, before any money from a 401(k) can be paid, a Qualified Domestic Relations Order must be filed.
This is a legal order that “requires a 401(k) administrator to distribute part of a 401(k) or other plan covered by the Employee Retirement Income Security Act (ERISA) to a former spouse as part of divorce proceedings.”³
This protects the ex-spouse from being subjected to the traditional early withdrawal penalty (if they are under 59½ years old).
Note – While the ex-spouse may not be hit with an early withdrawal penalty, the distributed 401(k) funds may still be taxed.
State Laws and Their Impact
What happens to a 401(k) after divorce is largely dependent on the state where the ex-spouse resides.
Some states are considered equitable distribution states, and others are community property states.
In equitable distribution states, your assets will be divided by the court in an equitable manner, factoring things such as each spouse’s financial situation, age, child custody, and more.
In short, in equitable distribution states, assets may not be divided 50/50.
In community property states, the court divides marital assets 50/50.
In community property states, each spouse is typically entitled to half of the money in a 401(k) account.
Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, with Alaska, South Dakota, and Tennessee allowing spouses to choose community property rules.
Options for Dividing a 401(k) after Divorce
There are 3 different options when it comes to how distributions are made for a 401(k) after a divorce.
- Roll Over. Spouses can roll the assets into their own retirement plan via a direct transfer. This is a way to avoid penalties, and it is tax-free (until they eventually start taking distributions).
- Defer. Spouses can defer distribution until the original owner of the 401(k) account retires. If you defer, then you choose to receive regular payments or a lump sum at his/her retirement.
- Cash Out. Spouses can also cash out their allotted portion of the 401(k) balance, which provides the money upfront, but can be costly, as they may face penalties and taxes.
Protecting Your 401(k) during Divorce
We believe it is wise to have a prenuptial agreement in place when it comes to protecting your assets, including your 401(k), because divorce can mess up your retirement plans.
When you lose a substantial portion of your 401(k) in a divorce, you will have less money for your future retirement.
This is why we feel it is smart to look for alternative methods for splitting assets, such as offering to allow your former spouse to keep the family home if you can keep your 401(k) balance.
If you are going through a divorce, we recommend you speak to a financial advisor.
A financial advisor can help you reevaluate your retirement plan and get back on track.
One final note – Make sure you update the beneficiary on your 401(k) after a divorce, so that your ex doesn’t inherit your retirement money.
Find out what 401(k) Maneuver may do for your retirement account balance. Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisors today.
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Sources:
- https://www.merrilledge.com/article/divorce-401k-retirement-assets
- https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-divorce
- https://www.forbes.com/advisor/legal/divorce/401k-in-divorce/
