What is the Impact of Divorce on Retirement Accounts?

While individual retirement accounts and 401(k)s can only have a sole account holder, they may be subject to division during a divorce. The money that goes into the accounts belongs to both parties according to the law, hence why they’re assets of interest during a divorce.

In most settlements, the spouse with a higher balance in their retirement account may need to transfer funds to the other spouse’s account. Family law attorneys in Alpharetta say that dividing retirement plan assets during a divorce can be complex, but courts often use a standard principle to decide.

How Are Retirement Plan Assets Divided in a Divorce?

One critical element in the division of certain retirement accounts during a divorce is the Qualified Domestic Relations Order (QDRO). This legal order applies to qualified plans such as 401(k)s and outlines how the asset will be divided between the divorcing spouses. The document is crucial because these assets can’t be divided through a court-issued order.

Whether you’re on the giving or the receiving end, it’s crucial to understand the rules governing asset division in a divorce. Proper definition and allocation of retirement-based assets can help you avoid costly mistakes that could see you lose the wealth you’ve worked so hard to create. Consult established property division lawyers in Metro-Atlanta for legal counsel.

Understanding QDRO

A QDRO legally establishes a spouse’s right to receive a portion of the other party’s retirement plan. It allows for the division of retirement assets without the typical penalties associated with early withdrawal. For example, if a spouse is entitled to 30% of their spouse’s 401(k), a QDRO would allow for this transfer without imposing the early withdrawal penalties.

Drafting a Qualified Domestic Relations Order is a legal process that must happen within the confines of law. It must meet federal regulations and adhere to the specific retirement plan’s rules. Skilled property division attorneys in Alpharetta can help you draft the document to protect your rights and interests.

How a QDRO Works

The document authorizes the plan administrator to pay an ex-spouse or another dependent a defined portion of a 401(k) plan or any other qualified retirement plan asset, such as a 403(b)b or 457. It also approves and enforces the asset-related terms of a divorce decree or property settlement plan approved by the court.

Metro-Atlanta property division attorneys say a QDRO must be submitted to the administrator alongside the divorce decree. However, the document only becomes qualified once and when the retirement plan accepts it. It also must contain specific language and details that meet the guidelines and provisions of the Employee Retirement Income Security Act (ERISA).

How Is an IRA Divided in a Divorce?

Independent retirement accounts are split differently from 401(k)s, using a process known as transfer incident to divorce. If you specify that an IRA division is to be handled this way, the separation transaction will not be subject to tax. The movement of funds may be classified as a transfer or a rollover, depending on the wording of the decree and case specifics.

The receiving couple only gains legal ownership of the assets when the transfer is complete. They will take sole responsibility for the tax implications of any future transactions or distributions. Your property division lawyers in Alpharetta can help you weigh your options and understand the implications.

If you don’t adequately label your IRA division as a transfer incident to divorce, you will owe tax and an applicable early withdrawal penalty on the entire amount due to your ex-spouse.

You can avoid these consequences by clearly listing the division percentage breakdown and value of the IRA assets to be transferred. It also helps to list the sending and receiving account numbers for all the IRAs involved in the transaction.

What is the Importance of Updating Beneficiaries on Retirement Accounts After a Divorce?

Alpharetta family law attorneys remind you that it’s vital to change or update the beneficiaries on your retirement accounts after sending or receiving your IRA or qualified-plan assets. Do the same for all the other financial assets, including life insurance and annuities. Your ex-spouse will probably not be among your heirs unless your divorce decree requires it.

If you remarry, your new spouse or children might be your primary heirs. Consider establishing a revocable living trust and make it the primary or secondary beneficiary of your plan or account. Let experienced property division attorneys help you accomplish this goal to ensure the assets will be distributed according to your wishes.

What Factors Should You Consider Before a Divorce Proceeding?

If you’re planning to get a divorce, it’s essential to be well-prepared for the process and to decide on the division of your retirement assets. The following steps can ensure you get or save a fair amount of retirement plan assets when dissolving a marriage:

  • Do your homework: Gather as much information as possible to be well-versed on the general rules of how retirement plans are divided during divorce. You will better understand what you can get or retain.
  • Get legal representation: While the division of other marital assets can be straightforward, you may need the legal counsel of skilled experts to review the division of retirement plans.
  • Ensure your paperwork is current: Send court orders and agreement documents to your plan and account custodians promptly. Failure to do so could force you to forfeit what is due to you because of invalid and outdated paperwork.
  • Give attention to survivorship: Ensure you’re listed as a survivor or beneficiary if your ex gets a pension that you’re dividing. You can continue collecting benefits upon their demise.

A Skilled Family Lawyer Helping You Navigate Division of Retirement Assets in Divorce

Division of assets during divorce can be complicated, and the rules are more intricate when retirement plan assets are involved. Knowing how to divide each type of plan can be tricky, but you can successfully handle the matter with the help of experienced Metro Atlanta property division lawyers.

Hecht Family Law has dedicated property division attorneys who can assess your case and work with you to achieve the most favorable outcome. No matter how complex your situation seems, we can take the burden off your back by fighting for a fair and equitable distribution of marital assets. Call us at 470-291-5342 to schedule a FREE case assessment.