Have you recently filed for divorce? If so, you will likely want to ensure you receive all the assets you are entitled to. If this is the case, you need to make sure you include your retirement benefits during the divorce process, rather than waiting for another time. This is true regardless of your age when you file for divorce.
When you decide to split up your retirement pensions, you need to seek the counsel of a professional financial adviser and a divorce attorney to avoid any pitfalls regarding that the taxes you may or may not owe.
An example of one retirement account that may involve a complex division process is an IRA. If you are transferring the interest from this account, it may be possible to only change the name. If it has to be divided, the share for the nonworking spouse needs to be moved into a separate IRA – either a preexisting one or a new one – that is only in that person’s name.
When you are able to orchestrate this transfer properly, they will not be taxable. However, if there are mistakes, it may result in tax-related consequences.
Any QDROs must be handled separately from your property division agreement.
A QDRO is a specific legal document that is created to both legally divide and allocate a worker’s retirement account with their ex-spouse or current spouse. In some situations, another dependent may wind up being named in the QDRO. Just like the IRA mentioned above, when properly drafted and filed, there won’t be any taxes or penalties accrued with this distribution.
The language that is used in the QDRO needs to stipulate the percentages, instead of the dollar amounts. For example, if you had a $100K retirement account, the documents should read that each spouse receives 50% rather than $50K. If the market happens to go belly-up, and a dollar amount rather than a percentage is used, then it may leave the original owner of the account with nothing while the other person receives everything that is left.
There is no question that filing for divorce can be a difficult and emotional time. If you are like many people, you may want to avoid having to deal with more than what is absolutely necessary, which may mean putting off divining your retirement accounts with your soon-to-be-ex. However, this isn’t a smart move. Waiting to do this can lead to an array of issues.
Instead, hire and work with your divorce attorney to handle this division now. If you need help with any part of your divorce or if you just have questions about your situation, contact Lewert Law, LLC by calling (561) 544-6861 for more information.
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