Connecticut residents who are getting divorced should educate themselves about the do’s and don’ts of splitting valuable retirement accounts with their spouses. While these assets are commonly part of marital estates, they may or may not represent the best asset for a spouse to receive at the end of the day.
NerdWallet recommends that the long-term tax implications and value of any asset be carefully evaluated before any decisions are made about who will receive what. Sometimes receiving assets from a pretaxed account that has a lower current value may be more advantageous than receiving assets from a tax-deferred account with a higher current value.
According to the U.S. Department of Labor, the use of a qualified domestic relations order may often be helpful and even required when splitting certain types of retirement accounts like 401Ks. When a QDRO is used, the recipient spouse may be able to accept his or her share without paying early withdrawal fees, penalties or taxes if the money is appropriately reinvested into another retirement account. A QDRO may also help a person to retain his or her survivor’s share benefits from a pension plan in the event that the account owner should die first.
It is also important to note that a qualified domestic relations order may be used to legally allow a person to use funds from a retirement account to satisfy spousal support or child support awards. These payments may be lump sums or made in installments. Such details would be included in the QDRO.