It takes years to establish an adequate nest egg for retirement. People frequently make 401(k) contributions regularly throughout their working lives to save adequate amounts. Their contributions to the account may be the main source of their personal reserves for their golden years.
Sometimes, married couples have joint retirement savings accounts. However, it is quite common for each spouse to fund their own account or for only one spouse to have a 401(k) related to their employment.
Is an account held in the name of just one spouse their separate property when they decide to divorce?
Marital income is subject to division
As a general rule, both spouses have an interest in what the other earns throughout the marriage. They share responsibility for financial obligations, like credit card balances. They also have a joint interest in any assets acquired with marital income.
That is even true in scenarios where only one spouse has their name on the account ownership paperwork. A separate 401(k) account in the name of one spouse is not necessarily separate property for the purposes of asset distribution during divorce.
When they made contributions can influence whether the account is subject to division or not. In most cases, at least a portion of the 401(k) is marital property that the spouses may need to split when they divorce.
Thankfully, directly dividing the account is not always necessary. Spouses can simply use the value of the account to inform other financial decisions. They can also use specific documents to prevent penalties for early withdrawals from their accounts.
Learning the rules that govern property division proceedings during a divorce can help people understand what to expect. Retirement savings and other financial assets are often subject to division unless there is a marital contract stating otherwise.