How to Protect Your 401(k) During a Maine Divorce

How to Protect Your 401(k) During a Maine Divorce 

No one who gets married envisions having to protect their assets in a divorce later, but unfortunately, divorce is just a part of our society today. And while divorce rates have actually declined over the last ten years many couples, even in Maine boasts one of the lowest divorce rates in the United States at 4.8%, still find they just can’t make their marital vows work for whatever reason.

If you are planning a divorce in Maine, you might be wondering “How do I protect my money during a divorce?” It’s important to consider every aspect of your finances to ensure a smooth transition. One important but often overlooked asset is the 401(k) retirement plan.

Failing to consider this asset in your divorce plan could end up costing you a sizable portion of your 401(k) balance. Having the right information, though, could help you hold on to more of the retirement investment balance you’ve worked so hard to build.

Who gets marital property in a divorce in Maine?

Where marital property law is concerned, Maine is an “equitable distribution” state. This means that the court will attempt to divide both assets and debts as equitably as possible.

“Equitable” frequently does not mean “equal,” though. Courts in Maine base the distribution of assets and liabilities based on a number of factors, including each spouse’s expenses, earning potential, and available resources.

In a divorce arrangement in which one partner would be responsible for ongoing child-related expenses, for example, the court might attempt to offset those expenses by awarding that person a greater percentage of assets and a lower percentage of debt.

In Maine divorce and finances, marital property includes retirement accounts – including 401(k) accounts, bank checking, and savings balances, pension plans, and owned businesses.

How can you protect your 401(k) in a divorce in Maine?

  • Consult your 401(k) plan administrator. There are many legal requirements that must be met in order for funds in your 401(k) account to become anyone else’s property. Your plan’s terms and conditions, as well as Maine law, control much of what can and cannot be done with 401(k) assets.

Your plan administrator will help you determine if your 401(k) assets are vulnerable in a divorce. If it appears that some assets are vulnerable, the plan administrator can help you determine the amount of those assets. This can help you develop a financial plan if some of your 401(k) assets are lost in a divorce.

  • Review your prenuptial agreement. Maine has adopted the Uniform Premarital Agreement Act – as long as the prenuptial agreement is in writing, it is considered enforceable.

When it comes to protecting money during Maine divorce proceedings, your prenuptial agreement is highly valuable. Keep in mind, though, that it may only cover contributions before your marriage date – contributions made during your marriage may still be subject to equitable distribution.

  • Handle 401(k) divorce cash-outs carefully. If you are going through a divorce, your spouse may seek to take a lump sum from your 401(k) plan to cover their expenses incurred in the divorce, as well as for other purposes.

Likewise, you might be tempted to cash out a portion of your 401(k) balance to cover your own legal, moving, or other expenses created by your divorce.

Typically, 401(k) withdrawals before age 59 ½ involve a 10% penalty – this is retirement money that is gone forever.

If your soon-to-be former spouse is seeking a 401(k) divorce cashout, ask your plan administrator or attorney about a Qualified Domestic Relations Order. This may allow you to avoid the 10% penalty and can specify how the plan pays your spouse.

Taking a cash-out for yourself, on the other hand, will almost certainly involve a 10% penalty. In addition, the money you withdraw from the plan will be treated as taxable income, which means you will owe even more money in the form of federal and state income taxes.

  • Educate yourself about your plan and your options. While it would be nice for your attorney or plan administrator to do all of the work, the simple truth is that you need to understand your plan and your options on your own. Familiarizing yourself with plan rules can give you the best leverage possible to keep more of your 401(k) assets.

Managing the Path the Forward

As I mentioned earlier, no one ever gets married with the intention of getting divorced, but life is full of surprises, and the only thing that is constant is change. If you need help planning for a divorce, I’d encourage you to check out this short video title, “How to Prepare for a Divorce in Maine” and learn how a Certified Divorce Financial Analyst can help. 

If you would like to learn more about August Wealth Management and our CDFA and CFP services, please feel free to contact us or schedule an appointment.

Certified Divorce Financial Analysts: What They Do and When to Hire Them

Certified Divorce Financial Analysts: What They Do and When to Hire Them?

If you are getting divorced in Maine, you’re likely finding yourself having to take care of dozens of tasks you’d never thought of. One task that proves difficult for many people going through a Maine divorce is protecting their finances to ensure a transition that is as smooth as possible.

Divorce can be a financial minefield, especially if you’re not prepared. Although your attorney may be able to competently handle other aspects of your case, they may not have the financial knowledge to help you protect and retain your assets in a divorce.

In some cases, having a Certified Divorce Financial Analyst (CDFA) on your side can be beneficial. In this article, you’ll learn what a CDFA is, what they do, and how they might be able to help you.

What is a CFDA?

A Certified Divorce Financial Analyst, formerly called a Certified Divorce Planner, is an accredited advisor who has met the requirements for the CDFA designation administered by the Institute for Divorce Financial Analysts.

These requirements include 3-5 years of professional experience in family law or financial planning, with demonstrable experience in at least three of the following:

  •     Financial coaching
  •     Real estate or mortgages
  •     Life and disability insurance
  •     Investment advising or managing
  •     Tax code researching and application

CFDAs must also pass a 4-hour exam to receive certification and must complete 30 hours of formal continuing education every other year to keep their certification in good standing.

What does a CFDA do?

A CFDA conducts research and analysis to provide financial insights to clients and their teams of divorce attorneys and other professionals. They typically take a collaborative approach with clients and their teams, helping them shape strategies to minimize the financial impact of the divorce.

In some cases, a CDFA may also provide expert testimony in cases where deep analysis of a client’s finances, businesses, and personal assets.

A CDFA can also provide budgeting guidance to assist you with adjusting to life after divorce. By projecting changes in income, assets, and expenses – such as childcare costs and spousal support – a CDFA can help minimize financial disruption and help you recover from a divorce more quickly.

What are the Benefits of Hiring a CDFA?

A certified divorce financial analyst is an essential part of your divorce support network. While they do not provide you with legal advice, they can help your legal counsel understand how your divorce agreement will impact your financial future.

A CDFA will also help identify short-term and long-term effects of dividing marital property and if possible, assist your legal team in proposing an alternative property division settlement that ensures a better financial future for you. They can also review your financial information and project how much money you need to maintain your current lifestyle after your divorce.

Additionally, a CDFA can help you determine if you can (or should) keep your marital home, identify future financial goals, develop a budget, and identify any divorce-related tax consequences. As mentioned previously, a CDFA can also testify as an expert financial witness on your behalf during the trial.

Is there a difference between a CDFA and a financial advisor or forensic accountant?

If you already have a financial advisor, you might assume that you don’t need to hire a CFDA. Unfortunately, most general financial advisors lack specific knowledge regarding the tax and financial complexities of divorce.

This means that, while your financial advisor might be able to help you choose investments or fine-tune your succession plan, they’re not the kind of specialist needed for a divorce case.

Want to Speak to a CDFA?

Is a CDFA the same as a forensic accountant?

No. A forensic accountant is a financial professional with extensive courtroom knowledge who will research, audit, and investigate to assist with a potential or actual dispute. Forensic accountants are often called upon in cases of suspected fraud, hidden assets, difficult business valuations, and other past transactions that could impact the financial outcome of the divorce.

A CDFA, on the other hand, provides advice and forward-thinking strategies to produce the best client outcomes possible in divorce cases.

Do I need a CDFA if I have an attorney?

Expecting your attorney to have a firm grasp on the financial implications of your divorce could be a costly mistake. Attorneys are experts in matters of law, while CDFAs are experts in finance.

In fact, some divorce finance experts recommend that when attorneys are going through their own divorces, they should hire CDFAs to assist them.

What should I look for in a CDFA?

If you’re planning to hire a CDFA, you may have already asked a few of your closest friends for referrals or spent time searching for CDFAs online. It’s important to understand, though, that not every CDFA is right for your specific situation.

While evaluating your CDFA candidates, it’s helpful to find individuals who are also Certified Financial Planners (CFP). This designation means that the person you hire will have a broad understanding of long-term finances, which can be helpful for maintaining stability after a divorce.

Please note that finding the right CDFA can take time. Although this can be frustrating during a time when you’re already under enormous stress, taking that time can help create better results for you after the divorce is final.


If you would like to learn more about August Wealth Management and our CDFA and CFP services, please feel free to contact us or schedule an appointment.