How are retirement accounts divided in divorce?

On Behalf of | Aug 16, 2023 | Divorce, Property Division |

As you work to navigate your divorce, you’re likely going to confront several complicated legal issues. Property division is amongst them. While this can be a hard-fought process, the outcome of which will shape your financial standing post-divorce, it can also be complex.

This can be particularly true when you and your spouse try to figure out how to split retirement assets.

How can you effectively divide retirement assets in divorce?

It depends on the type of retirement accounts that you and your spouse hold. With an IRA, for example, your divorce decree can indicate that the account in question should be divided incident to divorce, which allows the asset to be separated with part of it being rolled over into a second account. Proceeding this way avoids tax and early withdrawal penalties.

A 401(K), on the other hand, must be divided through a Qualified Domestic Relations Order (QDRO). These orders must be used to divide assets that are subject to the Employee Retirement Income Security Act. If you don’t use a QDRO to divide those retirement assets, then you’ll face significant penalties.

There may be other ways to divide your retirement assets. Just be sure to have a plan going into your property division process and understand that the split is meant to be fair, although not necessarily equal.

Competently handle retirement assets in your divorce

The value of retirement assets can be significant. You don’t want to lose that wealth because you made a mistake in your divorce. So, before heading into divorce negotiations or litigation, you’ll want to have a firm grasp on the process and how to utilize it to your advantage.

Also, keep in mind that dealing with retirement assets is just one part of your divorce. As you prepare for the road ahead, you’ll also want to make sure that you’re adequately addressing other legal issues that will have a profound impact on your life moving forward.



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