Divorcing spouses must often split their assets when they end their marriage, unless a prenuptial or postnuptial agreement indicates otherwise. Such assets may include vehicles, family homes, vacation homes and more.
Retirement accounts, while held in one spouse’s name only, frequently qualify as joint assets subject to division in a divorce. A qualified domestic relations order (QDRO) may facilitate this split.
Standard 401(k) account distributions
Withdrawals from a 401(k) account by a person aged 59 years and six months or more generally qualify as retirement withdrawals. The recipient, also the account owner, would claim any money received as income on her or his tax return and pay income tax on the amount.
Non-retirement 401(k) account distributions
When a person does not meet the qualification to receive retirement distributions, she or he may still withdraw money from a 401(k) account. The plan may assess early withdrawal fees on the amount taken, reducing the overall amount a person receives. If a person takes money from a 401(k) account to pay a former spouse per a divorce decree, these penalties may apply.
Penalties and the QDRO
The U.S. Department of Labor explains that a qualified domestic relations order establishes the spouse of the account owner as an authorized payee on the 401(k) account. The authorized payee may then receive distributions from the account per a divorce decree without any assessment of early withdrawal fees.
Taxes and the QDRO
According to the Internal Revenue Service, the spouse receiving money from a 401(k) account per a QDRO assumes responsibility for income taxes on the money.