Divorcing couples should not neglect retirement accounts

Divorcing couples should not neglect retirement accounts

The end of a marriage can be a difficult time for divorcing couples. Pent up frustration and anger can boil over, leading to disputes over child custody, child support, and spousal support. When it comes to property division, if one is not careful, these arguments may lead to overlooked assets or unfair treatment of those assets, thus leaving one party feeling he or she was cheated out of assets to which he or she was entitled. For this reason, it is important to consult with a family law attorney who can fully inform a party of the estate’s value and can help negotiate or argue for a fair deal.

One of the assets most often overlooked by those considering divorce is retirement accounts. The way these assets are handled during a divorce can have drastic effects, especially since retirement accounts often represent a divorcing couple’s largest assets. One of the most important things a divorcing party can do is obtain a Qualified Domestic Relations Order. These documents establish the rights each party to the divorce has regarding certain retirement accounts, including 401(k)s and IRAs. These documents require a lot of attention to detail, and a slipup could result in unwanted consequences.

Also, divorcing couples should be aware of the tax implications of dividing retirement assets. If money is incorrectly transferred from one retirement account to another, then the government may treat that transfer as a full distribution, thus requiring the payment of taxes. A Schaumburg divorce attorney can help draft a Qualified Domestic Relations Order that protects a party’s assets from such unfair taxation.

A divorcing couple should also be sure to change beneficiary designations on pension plans and life insurance policies. Failing to do so may cause a party to give money to a person they no longer want to care for financially.

Divorce legal issues like property division can be complex both emotionally and legally. But, in an effort to keep the divorce fair, an individual embroiled in a dispute should consider seeking assistance from a compassionate attorney who can offer the help he or she needs. Then, when the divorce is finalized, the party will hopefully be able to start a new life on firm financial footing.

Source: Investopedia, “How to Split IRAs and Other Retirement Plans During a Divorce” January 20, 2024