Short answer: It depends!
Working out the financial details is often one of the most contentious aspects of a divorce. Even in an amicable divorce, division of assets and debt can be extremely stressful. When there is conflict and debate, stress and emotion can rise to very uncomfortable levels.
It is essential that you work with a skilled family law attorney who will help you navigate this process, negotiate on your behalf and protect your best interests.
Washington is a community property state, as defined in RCW 26.16. Any money you earn and any property you acquire during your marriage is considered community property and subject to division. This means it belongs to both of you regardless of the name on the account if it was acquired during the marriage and is subject to division along just and equitable lines. Keep in mind that property may include real estate, vehicles, investments, business interests, financial holdings, pensions, and more. Similarly, all debts accrued during the course of your marriage are also considered to be community and subject to division. There may be exceptions as to what is considered community versus separate property, and it is important to have a solid understanding of how your property will be characterized. Your family law attorney can advise you around these complex distinctions.
“What about my 401k?”
What the law deems separate property is fairly limited. As described in RCW 26.16.010, separate property includes property owned by a spouse before the marriage and that acquired afterward by gift, bequest, devise, descent, or inheritance.
Unless otherwise designated in as separate in a prenuptial or postnuptial agreement, that pretty much covers it. Regardless of “ownership”, anything else you or your spouse have acquired during marriage is generally considered to be community property.
This means the 401k is fair game to become part of the divorce settlement and divided, per Washington State, along “just and equitable” lines. It is recommended that you work with a family law attorney who will help to prepare and inform you of your legal rights and options in this process.
“How will it be divided?”
As with other aspects of your divorce, it is best for you and your ex to come to a property division agreement on your own, including the 401k. You may agree to split the 401k earnings equally or in a way that feels equitable to your unique situation. Alternately, you may agree that you will keep your 401k and your spouse will receive other marital earnings comparable in value. If both spouses have 401ks, you may agree to each keep your own. If there is a significant discrepancy in balance, you may opt to split them each in half.
There are any number of ways you and your spouse may decide to divide things. In the case where an agreement can be reached, parties may divide their property and debts any way they mutually choose.
However, if you and your ex-spouse cannot agree, you are essentially forcing the court to decide who gets to keep what. When the court is making the determination, they will consider the type and amount of each property, the length of the marriage, and each spouse's current economic circumstance. The court will then issue an order of asset and debt division.
“Can I protect my 401k?”
You can protect yourself by understanding the law in Washington and getting quality representation to help guide you through a divorce strategically and efficiently.
You can also protect your 401k and other assets through a prenuptial or postnuptial agreement.
There is a fair amount of social stigma attached to prenuptial agreements, but we strongly advise to consider putting one in place prior to your marriage. If you did not, it is never too late to do a post-nuptial agreement if you both want to make sure that you and not a court will decide what happens to your accounts in the event of a divorce.
As much as a marriage is a public declaration of love and commitment, it is a financial partnership, endorsed by the government and involving certain rights and responsibilities. Prenuptial and postnuptial agreements are becoming increasingly popular. This is not because people are assuming their marriage will end in divorce, but because they are choosing to be prepared for all outcomes and protecting themselves and their separate property.
In a pre- or postnuptial agreement, you can designate that your 401k will be considered your separate property in the event of a divorce.
If it is too late and your facing divorce without a prenup, be sure you are working with a knowledgeable and savvy family law attorney. Our attorneys will advocate for your best interests and help you to protect your assets wherever possible.