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Dividing 401(k) relatively straightforward during divorce

When people go through marital breakups, an area of confusion and contention may be the division of assets. This is particularly the case if one party has amassed a large amount of money in a 401(k) through his or her company. Here is a glimpse at how divorce courts divide these type of defined contribution plans in Pennsylvania.

A large number of today's workers rely on the 401(k) to help them to save for their golden years. Fortunately, dividing these kinds of plans is fairly straightforward, as the cash value of a plan is easy to find out on any given day. The court, however, will determine the most appropriate way in which to split a 401(k) with a judicial order known as a qualified domestic relations order.

The great news for divorced individuals is that a divorced spouse who receives 401(k) payments can easily have them go to a separate retirement account that he or she has set up -- without receiving a penalty. In typical circumstances, removing money from a 401(k) prior to the age of 59 and ½ will result in a penalty of 10% of the amount withdrawn. However, this rule does not apply to divorce-related distributions made with qualified domestic relations orders. Any payments that are received and spent will be taxed as income, though.

When it comes to splitting retirement money and other assets in Pennsylvania, it may behoove a divorcing couple to address this issue at the negotiation table or through an alternative dispute resolution process known as mediation. Through these approaches they may be able to achieve a mutually beneficial settlement on their own and thus avoid having to go to court. An attorney can help those going through divorce to navigate these out-of-court proceedings, ensuring that their best interests and rights are protected every step of the way.

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