How to protect your 401(k) during a divorce

You stood in front of loved ones and friends, vowing to stay together forever “for richer, for poorer.” Now you are standing before a judge in divorce court, fighting over bank accounts, the house and the china.

If your marriage was lengthy, your largest marital asset is probably your 401(k). Luckily, you have strategies for protecting your retirement savings.

A conventional strategy – court

Court is a good route if you have a prenuptial agreement that covers your 401(k). Without an agreement, your spouse can claim at least part of your account. A judge will decide how to divide your retirement savings.

Your spouse can stake a claim to funds added to your retirement account during your marriage years. Likewise, if you contributed to your spouse’s 401(k), you are eligible to receive a deduction.

What is most important through the process is total honesty on all financial matters. If a judge learns that you are hiding any assets, he or she can award a greater percentage to your spouse.

An unconventional strategy – an alternative

Another option is negotiating with your spouse over the division of marital assets, including retirement savings. Bypassing court is less confrontational, quicker, less expensive and closed to the public. A judge reviews the final agreement for fairness.

Negotiating also gives you more control; you are not bound by court procedures. You are, in a way, setting your own ground rules. This encourages a cooperative atmosphere.

Avoid the offer of a lump sum cash payment as compensation for your share of the marital assets. The payment may come with major financial penalties that undercut its actual value. Consider the payment only if you are in dire need of money.

The most beneficial strategy – protecting your future

It is easy to make an innocent mistake during divorce proceedings that can cost you a small fortune. Consider all your options, and run through different scenarios.

While the facts are important, they may not be the deciding factor. The case can come down to which spouse makes the most convincing argument.