🎯 In 30 seconds: In a divorce, a dollar is not always a dollar: $100,000 in a 401(k) is worth less after tax than $100,000 of cash. Get a full list of what you own and owe, compare assets after tax, split workplace plans with a QDRO and IRAs with a direct transfer, remove your name from joint debts, and make sure you can afford the house on one income before you fight for it.
Step one: the full balance sheet
Gather statements for every account, debt and asset, in both names and in each name alone: bank, brokerage, 401(k), IRAs, pensions, HSAs, cars, the house, business interests, and all loans and cards. Pull your three credit reports to find accounts you did not know about. The short checklist is on money checklists for big life events; this page goes into the money decisions.
Compare assets after tax: a worked example
Chris and Morgan split $400,000 down the middle. Chris keeps the $200,000 401(k). Morgan keeps $200,000 of home equity.
| Chris: 401(k) | Morgan: house equity | |
|---|---|---|
| Face value | $200,000 | $200,000 |
| Tax or cost to turn into spendable money | Income tax on withdrawal, assumed 22%: −$44,000 | Selling costs, assumed 6% of a $450,000 sale: −$27,000 |
| Roughly what it is worth | $156,000 | $173,000 |
| Other differences | Can keep growing tax-deferred | Needs upkeep, taxes and insurance; easy to borrow against but hard to spend |
Neither side is wrong, but they are not equal. A Roth account, a taxable brokerage account with large gains, and a cash account all carry different tax bills too. Ask your lawyer or a divorce financial specialist to compare offers on an after-tax basis.
Dividing retirement accounts
- 401(k), 403(b) and pensions are split with a qualified domestic relations order (QDRO): a court order that the plan administrator accepts as qualified. It names the alternate payee (the ex-spouse, or a child or other dependent) and the share or formula.
- A payout to an ex-spouse under a QDRO is exempt from the 10% early withdrawal penalty, even before 59½. It is still taxed as income unless rolled into an IRA. This is one of the few ways to get cash from a 401(k) before 59½ without the penalty.
- IRAs do not use a QDRO. Under a divorce decree or separation agreement, an IRA can be moved to the ex-spouse tax-free by retitling or by a direct transfer between custodians, and it becomes their IRA. Taking a check and handing it over makes it a taxable withdrawal.
- Ask the plan for its QDRO procedures and model forms early; many plans provide them, and the order should be done before or with the final decree.
The house: keep it or sell it
- Can you afford it alone? Count the mortgage, taxes, insurance, upkeep and repairs on one income. The home buying page has the full monthly-cost method.
- Get the other name off the loan. Removing someone from the deed does not remove them from the mortgage. The keeper usually refinances into their own name; until then, both credit reports carry the loan.
- Capital gains: a single filer can exclude up to $250,000 of gain on a main home if the ownership and two-out-of-five-years use tests are met. You can count your spouse’s ownership time if the home was transferred to you. If your ex lives in the home under the divorce or separation agreement, that time can count as your use, which matters if the house is sold years later.
Debts and credit
A divorce decree binds the two of you, not your lenders. If the decree says your ex pays the joint card and they stop, the bank can still come after you, and the late marks land on your credit.
- Pay off and close joint cards, or freeze them to new charges, and remove authorized users both ways.
- Refinance joint car loans and the mortgage into one name.
- Open a checking account and a credit card in your own name now if you do not have them.
- Change passwords, PINs and security questions on every account and on your email.
Taxes and benefits after the decree
| Filing status | Set by your marital status on December 31. Divorced by then means single or head of household for that whole year. |
| Alimony | For agreements signed after 2018, not deductible by the payer and not income to the recipient. |
| Child support | Never deductible and never income. |
| Claiming the children | Generally the parent they live with most of the year; that parent can release the claim to the other with IRS Form 8332. |
| Health coverage | An ex-spouse can keep the employer plan through COBRA for up to 36 months. The plan must be told within 60 days of the divorce. |
| Social Security | After a marriage of 10 years or more, an ex can often claim on the other’s record without reducing it. See the Social Security page. |
Last, update beneficiaries on every account and policy (a decree does not always do it), write a new will, and file a new W-4.
- Which document splits a 401(k) in a divorce? Answer: A qualified domestic relations order (QDRO).
- Does a QDRO payout to an ex-spouse under 59½ owe the 10% penalty? Answer: No, though it is taxed as income unless rolled over.
- Your ex was ordered to pay the joint card and stopped. Can the bank collect from you? Answer: Yes. The decree does not bind the lender.
- Is alimony under a 2020 agreement taxable to the person who receives it? Answer: No.