Divorce and Retirement Accounts — 401(k), IRA, and Pension Splitting

For many couples, retirement accounts are the largest asset after the family home — sometimes larger. A 401(k) built over a 20-year marriage can easily reach $500,000 or more. Dividing these accounts correctly requires specific legal instruments, and mistakes can trigger unnecessary taxes and penalties.

See how retirement account division affects your overall divorce finances with the Divorce Financial Calculator.

How Each Account Type Is Divided

Account Type	Division Method	Tax Implications	Early Withdrawal Penalty?
401(k) / 403(b)	QDRO (Qualified Domestic Relations Order)	No tax at transfer; taxed at withdrawal	Exempt from 10% penalty if via QDRO before 59½
Traditional IRA	Transfer incident to divorce	No tax at transfer; taxed at withdrawal	10% penalty applies if under 59½
Roth IRA	Transfer incident to divorce	No tax at transfer or withdrawal	5-year rule applies
Pension	QDRO	No tax at transfer; taxed when benefits paid	N/A (payments begin at retirement)
Military retirement	Division of military retired pay	Taxed as income to recipient	N/A
Thrift Savings Plan (TSP)	Court order (similar to QDRO)	No tax at transfer	Special rules for federal employees

What Is a QDRO?

A Qualified Domestic Relations Order (QDRO) is a legal document that tells the retirement plan administrator to divide the account between spouses. Without a QDRO, the plan won't release funds to the non-employee spouse.

Critical facts about QDROs:

Must be approved by both the court and the plan administrator
Typically costs $500–$2,000 to prepare (attorney fees)
Should be filed before or at the same time as the divorce decree
If the account holder changes jobs before the QDRO is filed, it becomes much more complicated
Each plan needs its own QDRO (if you have a 401(k) and a pension, that's two QDROs)

Common mistake: Couples finalize the divorce but don't file the QDRO immediately. If the account-holding spouse dies, remarries, or changes plans, the other spouse may lose access to their share.

Marital vs Separate Portions

Only the portion of retirement savings accumulated during the marriage is subject to division:

Timeline	Example	Marital Portion
Total 401(k) balance	$400,000	—
Balance at date of marriage	$80,000	Not divisible
Growth on pre-marital balance	$40,000	Debated by state
Contributions + growth during marriage	$280,000	Divisible

The "coverture fraction" formula is commonly used: (months married while in plan ÷ total months in plan) × current balance = marital share.

The Tax Trap: Not All $100K Is Equal

A $100,000 traditional 401(k) balance is worth significantly less than $100,000 in a Roth IRA after taxes:

Account	Balance	After Federal + State Tax (~28%)	Actual Value
Traditional 401(k)	$100,000	-$28,000	~$72,000
Traditional IRA	$100,000	-$28,000	~$72,000
Roth IRA	$100,000	$0	$100,000
Brokerage account	$100,000	~-$15,000 (capital gains)	~$85,000
Cash/savings	$100,000	$0	$100,000

When negotiating division, insist on comparing after-tax values. Accepting a $200K 401(k) in exchange for giving up $200K in home equity leaves you with roughly $56,000 less in real purchasing power.

Special Rule: Accessing 401(k) Funds Early After Divorce

Normally, withdrawing from a 401(k) before age 59½ triggers a 10% early withdrawal penalty plus income taxes. But there's an exception for divorce: if a QDRO orders a distribution directly to the former spouse, the 10% penalty is waived. Income taxes still apply, but the penalty does not.

This exception applies only to employer-sponsored plans (401(k), 403(b), pension). It does not apply to IRAs. If 401(k) funds are rolled into an IRA first and then withdrawn, the penalty exception is lost.

For the full financial planning approach, see Financial Planning for Divorce — Checklist. For understanding how your state handles asset division, read How Assets Are Divided in Divorce. And for the family home decision, check Divorce and the Family Home.