Outside of your home, your retirement accounts may represent the most valuable assets in your divorce.
Your retirement accounts may also be among the most complex assets to split during property division.
The more assets you have, the more complex the property division process will be if you and your spouse are facing divorce. The task of splitting retirement plans must follow certain rules, and different rules apply to different kinds of plans.
A Qualified Domestic Relations Order (QDRO) is a legal document that shows a plan administrator how to distribute the funds in a retirement account such as a 401(k). The document serves as confirmation that each party in a divorce situation has a right to a certain portion of those funds.
A QDRO does not apply to a traditional IRA. Details for the division of an IRA should appear in the divorce agreement. The document is then submitted to the IRA custodian. Keep in mind that if you take IRA funds out early, even if ordered to do so through the divorce decree, you will pay a 10% tax on the withdrawal.
If you and your spouse can work together, you can simplify the distribution of your retirement accounts when it is time to enter the property division phase of your divorce. Applying teamwork to the process will save you time and expense. Make sure you understand the rules, something your financial adviser can help with. Also, keep accurate records in case you need a future reference to the process of dividing these valuable assets.