Divorce and 401(k) Plans

MSN Money has a pretty good description of how a 401(k) gets treated in a divorce - How divorce hits your 401k. The article is concise, accurate (at least for Indiana) and clearly written. I want to emphasize these paragraphs:

Q: By what mechanism is a 401k divided in divorce?

A: It's split up through a qualified domestic-relations order, or QDRO. That's a decree, order or property settlement under state law relating to child support, alimony or marital property rights that assigns part or all of the participant's benefits to an alternate payee. Generally the alternate payee is the spouse, but it could be a child or another dependent.

Q: Can I avoid an early-withdrawal penalty if I cash out part of my share of a 401k that I receive during divorce proceedings?

A: Yes. When the 401k is divided, you, as the alternate payee, have a one-time opportunity to take out 401k money without paying the normal 10% income tax penalty for withdrawing before age 59½. However, it is likely that you would have to pay income tax on any distribution.

As with all property in an Indiana divorce, 401(k) plans are presumed to be divided 50-50. The article correctly states that a QDRO (pronounce it QuadRO) is necessary for a transfer to the other party. What the article does not make clear (and probably this point is too complex for an article as straightforward as this was) is that one can keep the 401(k) intact if the other spouse gets 50 percentage of the property without the 401(k).

Which can mean horse trading amongst the assets or a long hearing on who gets exactly what and what is each item's value.