When negotiating property division in divorce, it is important for divorcing couples to keep all of their assets in mind. The family home, for many couples, is the biggest asset. Often, though, a couple’s retirement savings is their biggest assets, or not far behind the home. Working retirement assets into the divorce process is therefore an important thing to do.
Retirement assets are held in several ways, buy many people hold such assets in qualified retirement accounts. These include 401(k)s, IRAs and pensions. Whatever negotiations are made about retirement assets during divorce, it is important that they are set down in a qualified domestic relations order after the divorce.
A qualified domestic relations order establishes the rights an ex-spouse has to their ex-spouse’s qualified retirement account. Various requirements apply for each type of retirement account, and it is important to get these details right, since it can affect one’s retirement. If the only type of retirement account being split up is an IRA, a qualified domestic relations order may not be necessary. Also important is to carefully clarify how much each spouse is to receive from the account, ideally in terms of what percentage of the account.
Splitting up retirement money without a qualified domestic relations order can result in undesirable tax consequences. Nobody wants to pay tax money for assets they gave to their ex-spouse during the divorce.
Of course, it is important to work with an experience professional when putting together a qualified domestic relations order. Getting details wrong can make a big difference.
Source: Business Day, “How to divide your retirement assets in a divorce,” October 21, 2013.