Property Division - 401K vs Cash

North Carolina Divorce Law Divorce and Separation Answers
1

How is the value of a 401K account determined when comparing it to cash assets?

For example, let’s say my wife and I have a savings account with $100,000 in cash, and a 401K with a balance of $100,000. One person takes the 401K and the other takes the savings account.

But is this really fair? The 401K has not yet been taxed and the money can’t be withdrawn so does it have the same value as the savings account, which contains post-tax dollars.

I assume this kind of asset swap is common so I wonder if there is a standard formula that is used to compare a 401K to cash assets?

2

You are correct, these two assets do not have the same present day value. You must take the penalty and income tax into consideration. There is not a standard calculation because the tax rate will vary depending upon the person’s other income, but once you determine the tax rate, it is pretty easy to determine the present value.