Should You Keep Your Ex’s 401(k) Plan As-Is?

Is it possible to keep your share of your ex’s 401(k)? The short answer is yes.

In your divorce property settlement, if you are to receive a portion or all of the retirement assets that were in the name of your former spouse, you need to set up a transfer from their account to an account that is in your name. 

For qualified plans, such as 401(k) plans, a court order known as a QDRO (Qualified Domestic Relations Order) will be required before any assignment of some or all of the retirement benefits is made. Once the QDRO has been accepted by the plan administrator of the retirement plan, you may either have an account set up for you with the plan administrator in your name and the assets then transferred, or you may direct the plan administrator to transfer the monies into a different account that you have or will establish.


One advantage of keeping the separated account is that you may have access to or keep certain investments that only employees of that company have available to them through this retirement plan. You may decide that you would like to remain invested in those shares and this would be one way to do so.

Another advantage is that it gives you the ability to withdraw those funds without a 10% penalty if you are under the age of 59 ½. As long as you don’t move the funds to another qualified plan or to an IRA, you can take a distribution, pay income tax, but not pay the penalty for early withdrawal. However, unlike your former spouse, if the plan allows for loans, you may not be able to borrow against your retirement account. You’ll want to check with the plan administrator as to the loan policy.


A disadvantage is that you are required to take minimum distributions (aka RMDs) at such time that your former spouse turns age 70 ½, regardless of your own age. If you are younger than your former spouse, you will be required to take RMDs earlier than you will need to do with your own plans.

Starting the year your former spouse turns 70 ½, (with a deferral available for the first year only to April 1) you will be required to take taxable distributions each year thereafter. The RMD will be based on your age. If you are significantly younger than your former spouse, you may be forced to take taxable withdrawals during your working years — when your tax rate theoretically is higher. Also, while you may save those RMDs for a later day, you won’t have the tax-deferral offered by retirement plans and you will pay tax on any earnings from these savings. Therefore, if you plan on keeping the separate account, you may want to keep track of when your former spouse turns 70 ½ and decide on whether you want to be held to taking RMDs at that time. If not, you’ll need to transfer the account balance to your own account or an IRA.

There are many advantages, but it’s important to be aware of the disadvantages too. If you have questions or need assistance, please contact me today!

Susan A. Moussi, CPA, CFP®, CDFA SMD Tax & Divorce Financial Planning Consultants, Inc. Phone: 614.429.4172