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How can retirement accounts be divided during a divorce?

Property division in a divorce often requires one to see the bigger picture. For example, an individual who chooses to remain in the home will solely bear any capital gains tax obligations, in the event he or she later sells the home.

Similarly, valuing retirement accounts and securities may also require a long-term perspective. Notably, many Americans are planning for their retirement with a variety of approaches, including 401(k) accounts, pensions and IRAs. Thanks to early planning and/or employer 401(k) matching contributions, such accounts may be worth thousands of dollars by the time individuals reach retirement age. If those retirement funds were added during the marriage, they likely will be considered marital property that must be divided during a divorce.

A divorce decree may allocate ownership of certain assets. However, since a divorce court was not privy to the contractual language that established such retirement accounts, another legal step may be required. A Qualified Domestic Relations Order can make official any divorce agreements involving third party retirement contracts or securities. A QDRO is the legal process for designating an Alternative Payee on those accounts, in addition to preserving certain tax benefits. A QDRO should be executed before the divorce is finalized.

Finally, a spouse who will be receiving a share of retirement benefits should decided whether to use those funds simply for negotiation purposes or actually roll them over into a new retirement fund. After the accounts have been valued, a spouse may prefer to use that figure to negotiate acquisition of other assets. Our family law firm has worked with many tax and financial professionals in determining such projections.

Source: Huffington Post, “The #1 Most Overlooked Divorce Asset,” Daniel Sentell, Dec. 2, 2014

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