Making decisions regarding property division during a divorce can be among the most challenging.
Ensuring both parties receive their fair share of any retirement plans when a couple gets divorced is complicated enough for individuals who are already retired or close to retirement. In this article, we’ll look at how retirement plans are divided in a divorce to help guarantee all parties receive their fair share.
When it comes to dividing retirement plans into divorces, there are two main categories: qualified and non-qualified plans. Annuities, pensions, and other sources of income with no tax deferral advantages go under the category of non-qualified plans, whereas IRAs, employer-sponsored 401(k)s, 403(b)s, and other tax-deferred accounts fall under the category of qualified plans.
Division of Retirement Plans and Considerations
In general, if one spouse made a direct financial contribution to a plan while the couple was still married, the account will continue to belong to that spouse after the divorce is finalized. However, if a single party made premarital or postmarital donations that were accompanied by marriage assets (such as shared household expenses), the money must be divided in accordance with state law regulations and the equitable division statutes of each jurisdiction.
Aside from splitting the funds, there are also rules regarding when a non-beneficiary spouse can access their share of any qualified retirement plan. The party that is not the owner of the account must file a Qualified Domestic Relations Order (QDRO) to be able to receive distributions from such accounts. This order must specify certain details like how much will be paid out and when it should be distributed. All plans are required to allow for a QDRO, however, it is important to note the paperwork needs to comply with specific criteria so as not to delay or complicate the process of obtaining funds.
Additionally, keep in mind if one partner does not withdraw their portion of any retirement plan, the other party may be responsible for paying taxes on the unreceived amount. This is why it’s crucial to make sure any division of money or assets is properly documented and carried out in order to prevent issues or disagreements in the future.
Understanding how retirement plans operate and what needs to be done in order to earn your fair share will help make the divorce process a little smoother. Knowing your rights and obligations when it comes to dividing retirement savings will help you arrive at a proper asset division that will ultimately satisfy both parties.
Additionally, keep in mind that depending on how retirement plans are split, there can be certain tax implications. This is why it’s crucial to make sure any division of assets is properly documented and carried out in order to prevent issues in the future.
Work with Us
At Purposeful Wealth Advisors, we work closely with divorce attorneys, accountants, and other dedicated professionals to arrive at comprehensive solutions for our clients.
We can help you arrive at the best method to achieve a fair yet equal outcome for all parties concerned is to be informed and to make sure any division of money or assets is carefully documented.
Schedule a consultation with us today to know more!
Please note, changes in tax laws or regulations may occur in any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors we are not qualified to render advice on tax or legal matters. Raymond James does not provide tax or legal advice. Please consult with your own legal or tax professional for more detailed information on tax issues and advice as they relate to your specific situation.
