Protecting a 401(k) from Divorce in Arizona

Skilled Scottsdale divorce lawyers protect 401(k) and retirement investments

After you’ve spent years building your 401(k) fund, it may have become one of your most valuable assets. Losing your retirement savings in a divorce may seem unfathomable, but it is possible. Arizona’s community property law gives spouses equal ownership of money added to either spouse’s 401(k) during a marriage. At Clark & Schloss Family Law, P.C., our divorce lawyers in Scottsdale, Arizona develop strategic agreements to help divorcing workers and retirees hold onto their fair share of the retirement accounts that provide financial security for the future.

How to keep your retirement assets

During a divorce, community property is divided so that each spouse ends up with an approximately even share of the marital estate. Assets in a 401(k) may be split, or one spouse can keep the entire 401(k) by conceding other marital property.

One spouse often has larger retirement assets than the other, owing to different career paths or investment choices. If each spouse has a retirement account but the balance of one is significantly higher, the spouse with the smaller account may receive assets from the other spouse.

If you are involved in a high net worth divorce, you and your spouse may have several forms of retirement savings. Properly accounting for these assets is essential to ensuring they are given due consideration during the property division process.

Retirement plans have their own administrative rules stating how and when assets may be withdrawn by or paid to an ex-spouse. In some cases, an ex-spouse cannot be paid until they retire, while in other cases payment can be made before the recipient reaches retirement age. Knowing the rules of your plan empowers you to make smart decisions during settlement negotiations.

One of our focused divorce lawyers can talk through your options and come up with a strategy to exit the marriage with financial confidence.

How a QDRO works

If your divorce settlement involves any of your 401(k) going to your ex, a Qualified Domestic Relations Order (QDRO) will be needed. A QDRO is a court order allowing your spouse to receive funds from your retirement account. A 401(k) plan administrator can reject a QDRO if its terms do not adhere to the rules of the 401(k) plan. Our attorneys carefully consider your individual plan provisions before drafting a QDRO, so that you can achieve a streamlined division of marital assets.

Risk of loss if assets are sold

You may consider liquidating part of your retirement assets to access cash during your divorce. There is a 10 percent penalty for early withdrawals from a 401(k) account, which can amount to serious financial losses. You may also lose money if you sell assets when the economy is down. Our attorneys look for alternatives to making inopportune sales of retirement assets. If you need to liquidate part of your account for the benefit of your spouse, we will draft a legal agreement intended to hold your spouse responsible for tax consequences.

What happens if retirement assets were held prior to marriage?

Retirement assets held prior to marriage are the separate property of the spouse to whom they belong. Contributions made to the account during marriage are community property unless otherwise stated in a prenuptial or postnuptial agreement. Gains on those contributions would also be marital property.

Contact accomplished Scottsdale divorce attorneys for help protecting retirement savings

From the Scottsdale, Arizona office of Clark & Schloss Family Law, P.C., our attorneys help divorcing spouses protect 401(k) savings and other retirement funds. To schedule a consultation with our office, call 555.286.0000 or contact us online.