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Things to consider when a retirement account is divided in a divorce

On Behalf of | Dec 10, 2015 | Property Division

In the course of a divorce multiple assets will need to be divided. Just what those assets are will vary depending on the specifics of the marriage. While for some, the marital home is the biggest asset, in other situations, a retirement account could be at issue. This is particularly true when a couple has been married for an extended period of time.

Since the way in which a retirement account is divided could greatly impact the life of each spouse following a divorce, it is important that great care is taken to make sure each spouse gets all that he or she deserves. Things are not always straightforward. For example, in some cases it is possible tax issues could complicate the division of retirement accounts. Whether an account is taxed before or after a deposit into an account is made could have a bearing on how much someone actually receives in the split.

The way in which the division of a retirement account will happen varies depending on the type of retirement account involved. Where a 401(k) fund is concerned, a Qualified Domestic Relations Order may be used to make sure the funds are distributed as intended. A benefit to the use of this legal document is that eliminates penalties or taxes that would otherwise accrue upon distribution. Separate QDROs can also be used with other retirement plans sponsored by an employer, or pensions.

Another decision that must be made is when someone will receive their share of a retirement account. While in some cases a spouse may decide to cash out the portion they are entitled to, in other situations a payout can be deferred until the other spouse retires. Another approach a spouse might take is to roll the assets into another retirement account via a direct transfer.

Because a retirement account often contains a sizable amount of money, in the course of a divorce it is important to have an attorney who understands what goes with dividing a retirement account.