Which part of the account is shared
In New York, contributions and growth during the marriage, up to the date the divorce action is started, are generally marital property, while amounts built up before the marriage may be separate. Drawing that line takes statements from around the wedding date and the filing date, which older plans do not always have readily available. Loans against the account, rollovers from earlier jobs, and growth on the separate portion can complicate the calculation. Other states use different cutoff dates and rules, so the method matters as much as the balance. A spouse who is not the employee often has no direct access to these records and has to obtain them through the case.
The order that moves the money
A 401(k) plan generally will not pay a former spouse unless it receives a qualified domestic relations order, a separate document the court signs and the plan administrator approves. Done properly, a transfer to a former spouse under that order is not taxed to the employee, and withdrawals the former spouse takes directly under it avoid the usual early-withdrawal penalty, although income tax still applies. Drafting mistakes can delay division for a long time, and if the employee changes jobs or the account is drawn down meanwhile, the problem grows. Ask the plan early for its procedures and any model order language it provides.
Checking terms before you sign
Settlement agreements sometimes describe a split in a sentence the plan cannot carry out, such as a percentage with no valuation date or no mention of gains and losses after that date. We review whether the wording can be translated into an order, who will prepare and submit it, and who pays for that work. Beneficiary designations deserve attention too, since plan rules may keep a former spouse as beneficiary until the form is changed, and New York's automatic orders restrict certain changes while the case is pending. Bring the most recent statement, the summary plan description, and any statement from around the date of the marriage.
