Retirement savings are a critical asset in divorce
Retirement savings are a critical asset to many people in Florida, including those going through the end of a marriage. Divorce can carry with it an array of strains, including the visible emotional and psychological stresses caused by a split. However, another important element in a divorce is the financial aspect and the division of property between the spouses. There are many types of marital property that can be subject to distribution in a divorce, from retirement savings accounts to investments or real estate.
For many people heading toward divorce, one of the largest and most important assets handled in the split is a retirement savings account. For people with plans designated as “Qualified Plans,” especially defined benefit retirement programs and 401(k) plans, distribution during divorce is covered by a Qualified Domestic Relations Order, or QDRO. This document enables divorcing spouses to divide these plans as agreed in the divorce settlement without taxation or the 10-percent early withdrawal fee.
IRAs, or Individual Retirement Accounts, are not designated as Qualified Plans and are treated differently. For IRAs, there is no requirement that a QDRO be issued in order to divide the account without taxation during the end of a marriage. On the other hand, having a QDRO in place does not cancel the 10-percent early withdrawal penalty for an IRA.
This problem can be avoided, however, if the IRA transfer to the other spouse in the divorce is made pursuant to a divorce or separation instrument that is ratified by an appropriate court and takes the proper form designated in the Internal Revenue Code.
Every person going through a divorce should have a team of professionals providing support for complex matters, especially in issues of property division when there are significant assets at stake. A family law attorney can provide representation to advance the rights and interests of a divorcing spouse with the expertise to ensure that a divorce settlement meets all of the guidelines of law and protects a divorcing spouse’s financial future.