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How are retirement plans split during a divorce?

On Behalf of | Apr 29, 2021 | Divorce |

Splitting assets is hard enough during divorce. When it comes to retirement accounts like IRAs and 401(k)s, the problem becomes even more complex. Unlike other assets, special considerations must be made.

There are a few methods to divide retirement accounts during a divorce. The following strategies are effective for many couples, and they might also be right for you.

Dividing IRAs

Any IRA that was opened during the course of the marriage is considered marital property. That means the asset must be split equitably between the two spouses. If the IRA was opened before, but contributions were made during the course of the marriage, then the contributions must be split between the two parties.

If you have a Roth IRA, tax implications must also be considered. For example, when valuing this asset you and your ex must decide whether the valuation will include tax payments or not. You may also be able to perform a trustee-to-trustee transfer, which helps avoid taxes and penalties associated with early payment.

How to divide 401(k)s and pensions

Spouses are entitled to the proceeds of 401(k) plans and pensions. However, accessing these funds requires a Qualified Domestic Relations Order (QDRO) in addition to a divorce decree.

There are other, less complicated methods that can be used to split these funds. You may choose to forgo 401(k) funds in exchange for another asset. You can also convert the 401(k) into an IRA, which are less difficult to split. Keep in mind that if you choose to cash in on the 401(k) to provide assets, you will be faced with hefty taxes and penalties

Complex asset division requires the assistance of an experienced attorney. An attorney will ensure you get your deserved portion of assets, while also helping to mitigate any possible tax issues.