401K and Divorce in South Carolina
For many people, their 401k is one of their largest assets. This is an employer-sponsored retirement plan that employees contribute to, sometimes with an employer match. After a decade or so, a worker can have a substantial amount saved in a 401k.
Under South Carolina law, any marital property is subject to division when you divorce. This law extends to 401k accounts or any other retirement account that you contribute to while married. Call Surasky Law if you are facing divorce and have questions about property division.
Is Some or All of Your 401k Marital Property?
Under the law, you can leave your marriage with all of your separate property. These are assets you obtained while single and before you were married. However, any assets you obtained while married are typically considered marital and subject to division.
A question with a 401k is whether some or all of it is marital. If you opened the account while married, then your contributions are marital, so the entire account is marital.
However, some people start a 401k while single and continue to make contributions while married. What then?
You and your spouse can decide what percentage of the account is marital. You always have that option. But when you can’t agree, a judge will look to see when you made contributions to the account and the rate of growth.
For example, you might have opened a 401k when single. Five years later, you get married and continue to make monthly contributions for the duration of your marriage, which is ten years. Basically, about a third of your account will end up being your separate property.
Dividing an account like this is complicated. There are many considerations, including the rate of return, which we can’t address in this article. We often hire an experienced accountant to help us determine how much of a 401k is your separate property.
Dividing Marital Property Equitably
South Carolina is not a community property state, so there is no automatic 50/50 division of marital assets. Instead, a judge will look at many factors, which you can find in Section 20-3-620 of the South Carolina Code.
Some of the critical factors include:
How long your marriage lasted
Whether either spouse committed fault, such as adultery or cruelty
How much each spouse contributed to the acquisition of marital property
Any contribution one spouse made as a homemaker
Each spouse’s physical and mental health
The ability of each spouse to earn money going forward
Other factors
A judge will certainly consider the fact that you made contributions to a 401k from your own salary. But it doesn’t mean you automatically get to keep your entire 401k.
Also, the 401k and other investments are put in a “pot” along with other marital property, like your home, investment property, motor vehicles, cash, crypto, and personal property. It’s possible you can leave with your 401k intact. That is ideal. Unfortunately, there might be no other marital property, in which case a judge might order that your 401k get divided.
Further, you should consider whether you want to leave with a 401k. Often, it’s an easier asset to manage going forward than real estate, which requires upkeep. Work closely with your Aiken, SC divorce lawyer, to decide what assets to request in a divorce.
Why You Need a Qualified Domestic Relations Order (QDRO)
Once you realize you need to divide a 401k, you’ll need a Qualified Domestic Relations Order, called a QDRO. This is a judicial order sent to the 401k plan administrator, instructing them to transfer funds. It contains critical information, including the amount to transfer.
You absolutely must use a QDRO to divide your 401k in divorce. If you just took out money yourself, then you likely will end up paying taxes and penalties on it. Using the QDRO lets you make the withdrawal tax- and penalty-free.
Do’s and Don’ts with 401K Accounts and Divorce
Here are some tips to make your divorce smoother:
Don’t immediately cash out your 401k and blow the money. A judge might decide you wasted marital assets and give you less. Leave the money in the account—you’ll need it when you retire.
Do work with a lawyer to determine how much of your 401k is marital and nonmarital. We can hire a forensic accountant, for example, to figure this out.
Don’t hide a 401k or roll it over into an IRA, which you then try to hide from the divorce court. The judge could sanction you, and you’ll get less marital property for hiding assets and lying to the court.
Do see if you can divide all marital property in an agreement with your spouse. That can really speed up a divorce.
Don’t withdraw funds and give them to your spouse. As mentioned above, the division is made with a Qualified Domestic Relations Order (QDRO). Don’t sidestep this process.
How Surasky Law Can Help
We have negotiated many divorce settlement agreements with our clients. For example, you might agree that each spouse leaves the marriage with their own retirement accounts. That makes things easy for everybody. If your account is much larger than your spouse’s, then they might get more of the other marital property to offset the difference.
We can also argue that some or all of the 401k is your nonmarital property. We’ll hire the right experts to convince a judge to see the dispute our way.
Our firm also discusses your retirement goals, which can make a difference in what assets you request in divorce. Many of our clients divorce in their 50s, so retirement is right around the corner. We can help firm up your financial situation by requesting alimony as part of the divorce.
Contact Us to Get Started
You worked hard to save money for retirement. A divorce should not set you back and ruin your carefully laid plans. Call Surasky Law to schedule a free consultation with our divorce lawyer. We have decades of experience assisting people like you in divorce.
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