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I just got served divorce papers.

Sorry for your troubles.

My soon to be ex-spouce and I have about 125K in acompany sponsored 401K account

Not really. The 401(k) account is either yours or your spouse's - it is an individual account, owned by the person whose paycheck made the contributions. If you live in a community property state, and the contributions were made with community assets, your STBX may have a claim on have of the account value. Contributions made prior to your marriage may be considered yours. Similarly, you could have a claim on any retirement accounts your STBX has.

I will most likely have to give up half.

Don't assume that you will have to give up half if you are willng to give up other assets or assume debt. The amount that you will have to give up is a matter for negotiation between the parties, and their lawyers (assuming you each have your own lawyer, which I would recommend if the divorce is not amicable). The amount provided to each party may be offset by things like other assets (house, car, etc.) or assumption of debt. (Please note: Any debt (including mortgages) assumed by one spouse needs to be refinanced totally in that party's name. Otherwise, the lender may still have the ability to collect from the spouse who didn't assume the debt.)

What is the best approach to devide it up fairly in half?

Once you agree on what percentage/amount will go to each spouse, and the date for the split to occur, the way to split the account is using a QDRO (Qualified Domestic Relations Order). You can find information QDROs for 401(k)s in IRS Pub 575 - Pension and Annuity Income You may also be interested in Pub 504 - Divorced or Separated Individuals

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