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How to divide retirement funds in a divorce
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How to divide retirement funds in a divorce

On Behalf of | Feb 22, 2022 | Firm News

Couples seeking a divorce in Florida have many tricky issues to deal with, but one that may have substantial tax implications is dividing an IRA and or another retirement account. Paying attention to how to divide your qualified assets and doing so correctly could save you a lot of money come tax time.

A qualified domestic relations order is necessary

The name of this legal order seems intimidating, but it is a necessary step to dividing a 401(k) in divorce negotiations. Once you have this piece of paper, you have several options, including:

  • Keep your 401(k) while your spouse receives an asset of equal value
  • Divide your 401(k)
  • Liquidate the 401(k) to pay your spouse
  • Roll over the 401(k) into an IRA

Pensions have different rules. They are considered jointly owned, but the regulations to divide them are complicated and vary according to the pension’s structure. Most former spouses may receive the benefits directly.

Dividing IRAs is generally easier. If you opened your IRA during the time you were married, the account is deemed joint property. If the IRA was opened before the marriage, only contributions made during the marriage are considered joint property. This rule applies to traditional and Roth IRAs.

Understand the tax implications

Enlisting the help of a financial advisor or CPA may help you understand your tax implications better when dividing retirement assets. In addition to discussing tax consequences, you should also seek advice on the QDRO and factor your spouse’s benefits into the divorce negotiations.

It’s important to try to seek an amicable agreement on issues involving requirement funds. Understanding how complex these issues are and having an impartial financial advisor help you sort through the difficulties may help you and your spouse reach an agreement that works for you both.