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Dividing Retirement Accounts in a Divorce

When a couple ends their marriage through divorce, they have to divide all of their marital assets equitably. Marital assets are assets obtained or developed during the couple’s marriage, and this can include everything from real estate to savings accounts, jewelry, personal property, interest in a small business or professional practice, and retirement accounts like pensions and IRAs.

Before you file for divorce, take the time to educate yourself about how your retirement assets may be divided.

What is a Qualified Domestic Relations Order?

A Qualified Domestic Relations Order (QDRO) is a court order that permits a party other than the named owner of a retirement account to receive a share of the money contained within the account. The receiving party becomes known as an “alternate payee.” A QDRO protects the recipient’s rights to his or her share of the retirement account.

An alternate payee can be a spouse, child, or another dependent of the owner of the account. Once the money is moved from the original retirement account, it is put into a qualified plan, such as a 401(k), or a traditional IRA. If a QDRO is reported correctly to the court and the IRA custodian, it is a tax-free transaction. If the money is rolled into a Roth IRA, it is taxed but not penalized.

Which Retirement Assets Cannot be Divided?

Most retirement assets can be divided in a divorce. There are only a few types of retirement benefits that cannot be divided, which are:

  • Social Security benefits
  • Disability pensions
  • Military injury compensation

Although these cannot be divided, they must be considered when dividing the couple’s property to ensure that each party receives an equitable share of their marital assets.

Protecting your Retirement Assets in your Divorce

Work with your spouse, your lawyer, and your accountant long before you file for divorce to work out how your marital assets will be divided. By working these issues out before you begin the divorce process, you can eliminate any surprises and difficulties that can come with having the court divide your assets for you.

Pay close attention to the tax implications for each asset and how they will impact you and your spouse as single individuals after the divorce. If you are over 50, consider taking advantage of your catch-up contribution options. If you have liquid cash after the divorce, putting into your retirement accounts this way can help you avoid financial hardship when you retire since your account will now be only a share of what it would have been if you were still married on your retirement date.

Work with an Experienced QDRO Divorce Lawyer

If you are considering filing for divorce in the near future, speak with an experienced divorce lawyer to determine how you can divide your assets and whether certain assets need specific orders to divide. To learn more, contact Theodore Alatsas ESQ to set up your initial consultation with an experienced Brooklyn divorce lawyer.