Divorce and Retirement Assets: What You Need to Know
One of the most complicated parts of dividing marital property is splitting up retirement accounts. Some property is easier to divide. For example, maybe you will take the dining room set and he will take the living room furniture. Other property, such as your Naples home and investment accounts, requires complicated calculations performed by appraisers and accountants before you make any decisions regarding division.
While it may seem easier to put off valuing certain property because it seems too complicated and time-consuming, this is really the last thing you want to do. When it comes to valuing complicated assets, such as retirement accounts, it is important to get the ball rolling as soon as possible. To find out more about dividing retirement assets, read below.
Dealing with tax issues
When it comes time to transfer the funds in a retirement account because of a divorce, it is vital to do it in the right way. If you do not do the transfer correctly, both you and your ex could face a tax liability on the transaction. Furthermore, your divorce decree must explicitly state that the transfer is a requirement of the divorce.
Qualified domestic relations order
One of the best ways to ensure that you complete the transfer of funds correctly is to get a qualified domestic relations order (QDRO). This is a legal document that directs the financial institution holding the account to divide it in a specific way between the spouses. It can also help you avoid taxes and penalties that would normally come with such a transfer. Usually, QDROs are only applicable to retirement accounts you can set up through work, such as a 401(k), 403(b), or a traditional pension plan. However, keep in mind that a QDRO may protect you from taxes and penalties if you are transferring funds from a traditional or Roth IRA.
Update the beneficiaries
Once you have completed the transfers of the retirement assets, be sure to update the beneficiaries on the account. If your ex is still listed as a beneficiary and you die, he could end up getting the funds you actually intended to go to your children.
Keep good records
Be sure that you keep up-to-date and accurate records concerning your retirement accounts. While you may have a will and other estate planning tools in place, you should still keep track of your retirement accounts. The main reason behind this is that these accounts are subject to division among the beneficiaries you have listed on the account and are not ruled by what you have written in your will. Keep good records of all of your accounts in order to protect the interests of your heirs and beneficiaries.
If you are considering divorce, it is important to start the process of valuing your retirement accounts and other complex marital assets. Your attorney can help to guide you through the process so that you can come out with a fair settlement.