If you are getting divorced, your marital assets, including retirement accounts, will have to be divided with your spouse. Whether you are receiving retirement assets or giving them up, it is important to understand the rules of this process and how to avoid unnecessary penalties.
Dividing Retirement Accounts
The type of retirement account you have will determine how the division process should be handled. A Qualified Domestic Relations Order (QDRO) will only apply to qualified plans, such as a 401(k). On the other hand, the “transfer incident to divorce” will be used to divide an IRA account.
A QDRO is used to divide the assets in a qualified retirement plan between its owner and their ex-spouse, children, or other dependents. The transaction is tax-free as long as it has been reported correctly to the IRA custodians and the courts. The party who receives these assets may roll them into a qualified plan of their own or a Roth IRA or traditional IRA.
When splitting an IRA through a transfer incident, no taxes will be assessed on the separation transaction. Your former spouse will take legal ownership of the divided assets and assume complete responsibility for any tax consequences associated with future distributions or transactions. If you do not properly label the transfer incident, you will owe both tax and early withdrawal penalties on the amount transferred to your former spouse.
The process of dividing retirement accounts during a divorce can be complex, so it is crucial to hire an attorney to handle your case and ensure you do not incur any unnecessary penalties.
Speak to a Knowledgeable Divorce Attorney About Your Case Today!
At Rubenfeld Law Firm, our divorce attorney has more than 30 years of experience helping clients navigate the divorce process and protecting their retirement assets. We understand the difficulties and emotional challenges that are often faced as couples dissolve their marriage and can provide the strong legal support you need to skillfully overcome them while protecting your interests. No matter how complicated your case may be, you can feel confident in our ability to secure the best possible results for your case.
Reach out to our law office today at (631) 777-7200 to schedule a consultation with our attorney to discuss the details of your divorce and learn more about what we can do for you.