Keeping the 401k in a Divorce

When preparing for a divorce, Los Angeles couples would be wise to sit down and take stock of the assets they possess that will be subject to property division. One asset that many often fail to include in such an assessment is a 401k. At first, it may seem odd that a 401k could be viewed as a marital asset, especially since its capital is drawn from an individual's paycheck. Yet the money earned from that paycheck while one is married is marital property, which explains why his or her 401k would be also. 

When contemplating how one's soon-to-be ex-spouse will get to benefit from his or her 401k (or vice versa), the first thing one should know is that only the contributions made during the marriage as well as any growth its funds experience during that time is divisible. Next, one should also consider how the funds will be divided. According to the website, 401k funds are divided in the manner dictated by state law. In equitable distribution states, the court would consider the contributions each party made to the growth of an asset when determining how to divide it. This may certainly seem to favor the contributing spouse. However, California is a community property state, and as such, considers marital assets to be jointly owned. Thus, minus a prenuptial agreement which protects one's 401k, those funds subject to division would likely be divided equally. 

There may be a way, however, for Los Angeles residents to keep the full value of their 401ks in their divorces. The 401k Help Center recommends negotiating with one's spouse to retain full ownership of his or her retirement accounts. That would likely mean, however, that one must also relinquish his or her ownership stake in another equally valuable marital asset.