Is a Spouse Entitled to 401(k) in Divorce in Tennessee?

One of the most complex parts of a divorce is the division of property. One of the assets that people may not think of right away, but that could be one of the most significant assets you own is your 401(k).

Even if you aren’t accessing the funds at the time of your divorce, it’s possible that your 401(k) could be considered marital property. And since Tennessee is an “equitable distribution” state, that means that your 401(k) may end up included in the division of property during the divorce. 

And while you may be able to negotiate to keep your entire 401(k), it’s important to know how your account could be affected. Let’s take a look at how a divorce can affect your 401(k) and learn whether or not your soon-to-be-ex is entitled to it.

How is Property Split in a Tennessee Divorce?

According to Tennessee code § 36-4-121, the judge will split all marital assets equitably during a divorce. An equitable split doesn’t necessarily mean that assets will be split 50/50. It means the division depends on circumstances such as each spouse’s financial situation and their ability to earn an income.

How Your 401(k) May Be Divided

There are a couple of things that the courts may consider when deciding how and if to split a 401(k) account. First, the funds you contributed before you were married are typically considered yours and should not be part of the split.

Next, your 401(k)’s value will need to be reduced by the taxes that will need to be paid when a distribution is made. Taxes get paid on distributions from a traditional 401(k), but distributions from a Roth 401(k) are not taxed because you paid taxes on those funds before investing them.

It’s essential to work with the company that handles your account and a financial advisor who can determine the accurate total value of your account. Typically, your plan administrator can provide you with this information and will also have to approve any distributions from your account before they occur.

401(k) Distribution by a QDRO

After you have determined the value of your 401(k), the easiest way to handle it is to not divide the funds. You can do this by adjusting the amount of other marital assets that your spouse will receive to equal the value of your account’s balance. So if the current value of your account is $25,000, your spouse would receive additional assets in that amount which will allow you to leave your 401(k) intact.

If the judge decides that you and your spouse should split the account, your attorneys must prepare a Qualified Domestic Relations Order (QDRO). This document will divide your 401(k) into two accounts. After the QDRO is approved by you, your spouse, your 401(k) plan administrator, and the judge, you both can then invest and manage your money as you would like.

401(k) Distribution by Early Withdrawal

The other option is to withdraw your 401(k) funds to pay your spouse their share. Your spouse may agree to accept a lower amount so that they can get their share of the funds immediately instead of waiting for QDRO withdrawals to go into effect.

You will have to account for taxes that will be due depending on the type of IRA you have. You should also account for IRS (Internal Revenue Service) penalties that will be assessed if you make withdrawals if you are younger than 59 ½. Make sure that you and your attorneys account for who is responsible for taxes and penalties.  

401(k) Distribution by Rollover

If you no longer work for your employer, and if your 401(k) permits, you can roll your 401(k) funds into an IRA. Doing this will allow you to create both you and your spouse an account.

Rolling the funds may constitute a rollover fee, but those fees typically aren’t costly. A plus to rolling your 401(k) into an IRA is that you usually don’t have to worry about paying taxes when you withdraw funds from your IRA when you retire.

Questions About Your 401(K) During a Divorce? Hunter Fowler Can Help

Divorces get messy. You need an experienced divorce attorney who is an expert in family law—someone who will help you set realistic goals—someone that you trust.

Whether you’re filing for divorce or have been served divorce papers, you may feel like your world has come crashing down around you. It’s a very vulnerable and confusing place to be in, which is why you need the best legal counsel possible to navigate all the ins and outs of divorce law.

Attorney Hunter Fowler has provided legal services to many individuals in your exact situation and will work with you through every detail of your divorce proceedings to ensure the final outcome is what you want for yourself and your family. 

Contact Hunter Fowler today to schedule your free consultation and get the legal counsel you deserve.