What happens to my 401(k) if I get an Oregon divorce?
In general, Oregon law requires that a judge overseeing a divorce divide the couple’s property according to a principle called equitable distribution. This means that a judge will not always split a couple’s assets down the middle, giving 50 percent to each party, and instead will take the couple’s overall situation into account. However, there is a strong presumption that each party has equally contributed to any assets acquired during the marriage, which includes the marital growth in a premarital 401(k).
Unlike other equitable distribution states, when it comes to determining what happens to a 401(k) in a divorce, Oregon judges are not guided by a specific list of statutorily defined factors. Courts have fairly broad discretion when conducting the equitable distribution analysis. For example, courts may take into account the length of the marriage, each spouse’s individual contributions to specific assets, and the total amount of assets subject to division. Under Oregon law, the courts must consider the direct and indirect contributions of a spouse as a homemaker, too.
Oregon law is also unique in that a spouse’s separate assets, meaning those that were acquired before the marriage, can be subject to division between the parties. This means that a court may be able to divide a retirement account that was opened before the marriage, even if all contributions to the account were also before the marriage.
Of course, separate assets are less likely to be subject to equitable division. That being said, there are circumstances where a judge would order a premarital retirement account divided between spouses.
What is a QDRO?
One of the several complications that can arise when dividing a retirement account during a divorce is that dividing the account may constitute a withdrawal, triggering taxes and potentially penalties. To avoid the effects of these taxes and penalties, a court can create a Qualified Domestic Relations Order (QDRO). The purpose of a QDRO is to name an alternate payee on a retirement account, allowing a former spouse to have access to their portion of the account. However, QDROs typically only apply to private employee retirement benefits 401(k) plans that are specifically subject to the Employee Retirement Income Security Act of 1974 (ERISA).
Other Creative Solutions
Rather than pursuing a QDRO during a divorce, the couple may agree to an alternate means of dividing the assets contained in a 401(k). For example, each of the following alternatives may make sense, depending on a divorcing couple’s individual circumstances:
• One spouse keeps the 401(k), and the other spouse takes other marital assets of comparative value
• The 401(k) is rolled over into an Individual Retirement Account (IRA)
• The spouse with the 401(k) agrees to make distributions to the other spouse once withdrawals can be made without incurring a penalty
As is the case with many other issues that come up in a divorce, dividing a 401(k) account can be difficult. However, there are many creative strategies that may simplify the process. Those who are concerned about what will happen to their retirement account during a divorce should consult with a dedicated Oregon divorce attorney to discuss their case.