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Considering the 401(k) plan in a divorce

Maryland spouses who are contemplating a divorce might be surprised to find out that it is possible to receive retirement benefits from their spouse's 401(k). While it is not normally legal for the funds of a 401(k) to be distributed to anyone other than the account holder, there is an exception that allows divorced spouses to receive retirement pay from their ex-spouses.

The exception permitted by the law is for the employee with a 401(k) to designate an alternate payee. This designation must be in accordance with the Employee Retirement Income Security Act of 1974, as well as with the regulations of the Internal Revenue Code to be considered by a divorce court.

If the court accepts the designation, then a divorce lawyer working with one or both of the clients must draft and submit a qualified domestic relations order or QDRO to the divorce court for approval. The QDRO is the document that ensures the transfer of all or part of an employee's retirement funds to their ex-spouse. In this case, the funds will not be taxable, and they will be transferred to the individual retirement account of the former spouse. The QDRO can also be used to transfer funds to the children of the spouses for the purpose of child support, although these cases are less common.

When a spouse is considering divorce, it may be a good idea to discuss concerns about asset division with a lawyer who focuses on family law. An attorney might be able to discuss important aspects of property distribution, including the distribution of retirement money. A family law attorney might also be able to help with the drafting of important documents such as the QDRO.

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