1. Home
  2.  » 
  3. Divorce
  4.  » How divorce and 401k might intersect

How divorce and 401k might intersect

On Behalf of | Jul 26, 2021 | Divorce |

A pair of Mississippi spouses might each have full-time careers in which they take advantage of money-saving benefits offered by their employers. If one or both spouses is enrolled in a 401k program, both spouses technically own any funds that the account accrues during marriage. An exception to this would be if spouses signed a prenuptial agreement before their wedding day stating that 401k funds are separately owned by one or the other spouse.  

Mississippi is an equitable property state 

Like a majority of states in this country, Mississippi operates under equitable property division guidelines in a divorce. All marital property and assets are fairly divided between spouses, although not necessarily in a 50/50 split. Therefore, filing for divorce does not automatically mean that both spouses will get a share of 401k benefits.  

No tax penalty for early withdrawal of 401k if certain divorce issues arise 

If both spouses are awarded a portion of the funds in a 401k account in a divorce, the tax penalties that would typically be incurred for an early withdrawal of funds is waived. Other divorce issues, such as retirement benefits, may also have an impact on a property division settlement, and such benefits may have tax implications as well. It is always best to seek clarification of any state or federal laws that apply before navigating property division proceedings.  

It may be possible to negotiate rather than lose 401k benefits 

In many cases, spouses are able to negotiate or barter assets in a divorce. If a spouse does not want to share his or her 401k benefits, he or she may be able to offer an asset of equal value in exchange. If both spouses agree to a proposed asset division plan, they can seek the court’s approval and achieve a fair settlement.