Family law: what happens to retirement assets in a divorce?
A divorce is known for its many disputes and emotional baggage. For that reason, it is quite understandable for couples to end the divorce proceeding as quickly as possible. However, this may not be the best course of action. Doing so may lead to divorcing couples overlooking certain concerns, which, in turn, may result in problems in the long run.
Take, for example, retirement assets. It is easy for Orange County, California, divorcing couples to miss the value of dividing a person’s retirement assets during the split. After all, family law concerns like custody, child support and spousal support are usually at the top of the divorce list. However, letting retirement assets slide can cause taxation problems.
The up side is that transferring retirement assets is relatively simple. It usually involves changing the name on the account. If the assets are to be divided, the amount that will go to the spouse who does not own the account should be transferred to an existing account. A new account can be made if a spouse does not have a current account. A property division settlement or divorce decree should indicate the transfer.
However, how does one correctly distribute the funds without fear of taxation or penalties? That is where a Qualified Domestic Relations Orders comes in. A QDRO usually involves a traditional pension plan and a 401(k). This legal document allows the distribution of assets without penalties or taxes.
As Orange County divorcing couples can see, doing the proper research in line with his or her retirement assets can have many benefits. It also ensures that even in a divorce, spouses will not compromise their retirement benefits. It is understandable that a divorce can get messy and the process can seem complex. However, proper education and guidance on such matters can help iron out these problems so that the couple can have a fresh start in life.
Source: Fox Business, “How to Split up Retirement Assets in a Divorce,” Marilyn Bowden, Sept. 16, 2013