Many Michigan residents who are fortunate enough to have 401(k) benefits offered through their employers may consider such accounts as separate property in divorce. This is not often the case, though. For most married couples, this is considered a shared asset -- a pretty significant one. The potential problems with dividing such an asset are many, but a divorce law attorney can make sure one takes all the necessary steps to get it done right.
So, how can one access a spouse's 401(k) assets? Some would think it is as simple as the holding spouse filling out a distribution request. This, however, is considered an early withdrawal and subject to fees, penalties and taxes.
No, to access funds in a 401(k) early, the spouse wishing to receive the money needs to fill out a qualified domestic relations order. In that order, he or she needs to specify how much he or she wants -- usually listed as a percentage rather than a dollar amount -- and give information about what is going to happen with the funds -- such as being transferred to another retirement account or being direct deposited into his or her bank account. Those who do choose to take the funds directly rather than roll them into a retirement account will likely have to pay income taxes.
There are so many rules regarding retirement accounts and the early access of money. Going about it the wrong way will only hurt both parties in the end. A Michigan divorce law attorney can help one seek a fair division of 401(k) assets by making sure all required steps to access such funds are taken.
Source: cnbc.com, "How to avoid mistakes dividing up 401(k) assets in divorce", Sara O'Brien The, March 7, 2018