Dealing with 401K accounts in case of divorce in a same-sex marriage in Washington State.

What happens to a 410k account in case of divorce in a same-sex marriage in Washington State?

While the passage of same-sex marriage in Washington State conveyed all rights and responsibilities afforded opposite-sex spouses under state law, couples still do not enjoy the full benefits of married couples as provided under Federal law.

One of the largest areas of impact is with regard to qualified retirement accounts, such as defined contribution (401(k)) and defined benefit (pension) accounts.  Specifically, in the event of a divorce, qualified retirement accounts are often divided in some fashion between spouses by use of a Qualified Domestic Relations Order (“QDRO”).  This enables the plan administrator to transfer or segregate the funds (in the case of a defined contribution plan) or divide the distributions of the monthly annuity (in the case of a defined benefit plan) for the benefit of the former spouse.  These transfers and segregations are tax free when completed through a QDRO. However, because same-sex marriage is not federally recognized, these tax-free exchanges cannot occur under current federal tax codes regarding qualified retirement accounts.

The impact of this can be quite significant, as retirement benefits are often one of the most valuable assets to divide in a marital dissolution.  Thus, the parties would have to withdraw the qualified funds, thereby potentially incurring a penalty, and incurring a significant tax liability.

In the case of pensions, you generally cannot obtain early distributions unless the employee separates from employment, so the funds are tied up until the spouse becomes entitled to draw benefits at retirement.

Until this inconsistency is resolved on the federal level, overcoming these challenges will be at the forefront of martial dissolution practice when representing same-sex spouses.  The lawyers at Edmonds Law firm Berersford Booth are ready assist their clients with divorces in Washington State.

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