RETIREMENT ACCOUNTS IN DIVORCE: THE IMPORTANCE OF PROTECTING YOUR FUTURE

One of the most important parts of divorce is the division of marital property. Decades ago, the marital home was typically the most valuable asset that had to be split in divorce. Today, in the wake of the housing crisis, this is rarely the case. In many divorces, retirement accounts are often the largest (and most complex) asset that needs to be divided as part of the divorce property settlement.

Carefully worded agreements, proper tax treatment two big considerations

Retirement assets can come in many forms. It is very important not to overlook retirement accounts of any kind that have accumulated value over the course of the marriage. Some of the most common retirement assets include:

● 401(k)s

● IRAs

● Pensions

● Profit sharing arrangements

● Stock bonus plans

● Keogh plans (tax deferred pension plans available to self employed individuals or unincorporated businesses)

Unlike many other types of assets, dividing retirement accounts is not simply a matter of dividing dollar amounts; for many types of retirement assets, it more about spelling out in painstaking detail your wishes for the account.

For example, imagine that a couple was in the process of divorce and they had a 401(k) account worth $200,000. Simply saying that one spouse was entitled to $100,000 rolled over into an individual account would be a poor way to word any kind of divorce settlement, because market fluctuations could drastically affect the value of the account. If this agreement was struck in the summer of 2008 before the market crashed, the account would be significantly depleted by the time any rollover was finalized, and $100,000 would be far more than a 50 percent interest.

Sometimes retirement assets do not lend themselves to an immediate split. When each former spouse is entitled to periodic benefit payments, it is especially important to set up a qualified domestic relations order, or QDRO. When taxable retirement benefits go to your ex from an account in your name without a QDRO, it is treated as a taxable distribution to you, meaning you have to pay the IRS for money that goes directly to your ex. A QDRO establishes your ex’s legal right to receive a designated percentage of payments, ensuring that he or she will be responsible for any income taxes associated with those distributions.

Contact a family law attorney to learn more

When splitting up retirement assets in a divorce, the stakes are high; any missteps can be costly. Having the assistance of a family law attorney with an accounting or financial background can be extremely helpful. To learn more about dividing retirement accounts in divorce, get in touch with an experienced family law attorney today.

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