How to Split a Retirement Plan
There are many assets that need to be divided in divorce. Many of these have great emotional attachment and can be difficult to separate. There are issues of child custody and alimony and all of the other stresses that make divorce so difficult. With all of these pressures and questions about divorce, many couples look to make their divorce quick and move on without necessarily looking to the future. These couples are gambling with their future financial security and possibly giving away a huge sum of money. Everyone facing divorce needs to have a clear view of what their retirement plans in divorce will look like and how they will be shared. Divorce can disrupt these plans if you aren’t careful so it’s a good idea to pay close attention to this area.
Understand Your Rights and Responsibilities
When getting divorced all assets must be split between the two partners, and are divided into two types: individual and communal. Individual assets are typically few and only really exist if a prenuptial agreement is in place. Communal assets are generally defined as anything gained during the marriage. Most forms of retirement planning fall into this category. This means that you have a right to a portion of your spouse’s retirement plan, and they have a right to yours.
There are many different types of retirement plans just as there are many different ways of dividing them under the law. Depending on what type of plan your spouse has you may receive a large sum of money at the time of the divorce settlement or you may receive payments when you reach retirement age. Those spouses receiving payments may choose to get a Qualified Domestic Relations Order or QDRO. A QDRO is a court order that will tell your spouse’s pension when and how much to pay you as part of your divorce settlement. It’s a good idea to get some sort of court order to ensure that your financial well being isn’t left up to the kindness of your ex!
A QDRO is available for any retirement plan that is tax-qualified by the IRS and covered by the Employee Retirement Income Security Act or ERISA. It’s important to for your Domestic Relations Order to be qualified because then it will be legally binding. In order to do this, both the pension fund administrator and a court must approve the order. By taking time to make sure that you have some legal backup you can rest easy knowing that your future is financially secure.
There are some types of retirement income that are not required to be split. These include social security, workers compensation, and injury compensation from the military. These retirement incomes will generally not be part of a court-ordered settlement.
It’s a good idea to hire an accountant to help divide the retirement savings for tax purposes. Fund transfers to different retirement accounts are generally only free from taxation if they are required specifically in the divorce settlement. If this process is not spelled out specifically in the divorce settlement then transfers of this kind will be considered a full distribution and will be subject to taxation. A qualified accountant can help clear up these matters and make sure that unnecessary money isn’t lost to the IRS.
Other Options
Some spouses will choose not to take a portion of their partner’s retirement plan and will use their right to it as leverage instead. Instead of taking half of a retirement plan, one spouse might use their entitlement to it to take the house instead. You are entitled to use the portion of your spouse’s retirement plan as leverage to get something you may prefer. In other words, it’s yours; use it how you will!
Divorce can be a painful process and quick proceedings are desired by most who are going through it. Don’t let your desire to finish quickly compromise your future financial security. Make sure to understand the local laws as well as your rights and responsibilities. As always, it’s wise to hire professionals to make sure that you aren’t making any costly mistakes. Lawyers and accountants can help to make sure that your retirement plans aren’t ruined just because your marriage has ended.
Understand Your Rights and Responsibilities
When getting divorced all assets must be split between the two partners, and are divided into two types: individual and communal. Individual assets are typically few and only really exist if a prenuptial agreement is in place. Communal assets are generally defined as anything gained during the marriage. Most forms of retirement planning fall into this category. This means that you have a right to a portion of your spouse’s retirement plan, and they have a right to yours.
There are many different types of retirement plans just as there are many different ways of dividing them under the law. Depending on what type of plan your spouse has you may receive a large sum of money at the time of the divorce settlement or you may receive payments when you reach retirement age. Those spouses receiving payments may choose to get a Qualified Domestic Relations Order or QDRO. A QDRO is a court order that will tell your spouse’s pension when and how much to pay you as part of your divorce settlement. It’s a good idea to get some sort of court order to ensure that your financial well being isn’t left up to the kindness of your ex!
A QDRO is available for any retirement plan that is tax-qualified by the IRS and covered by the Employee Retirement Income Security Act or ERISA. It’s important to for your Domestic Relations Order to be qualified because then it will be legally binding. In order to do this, both the pension fund administrator and a court must approve the order. By taking time to make sure that you have some legal backup you can rest easy knowing that your future is financially secure.
There are some types of retirement income that are not required to be split. These include social security, workers compensation, and injury compensation from the military. These retirement incomes will generally not be part of a court-ordered settlement.
It’s a good idea to hire an accountant to help divide the retirement savings for tax purposes. Fund transfers to different retirement accounts are generally only free from taxation if they are required specifically in the divorce settlement. If this process is not spelled out specifically in the divorce settlement then transfers of this kind will be considered a full distribution and will be subject to taxation. A qualified accountant can help clear up these matters and make sure that unnecessary money isn’t lost to the IRS.
Other Options
Some spouses will choose not to take a portion of their partner’s retirement plan and will use their right to it as leverage instead. Instead of taking half of a retirement plan, one spouse might use their entitlement to it to take the house instead. You are entitled to use the portion of your spouse’s retirement plan as leverage to get something you may prefer. In other words, it’s yours; use it how you will!
Divorce can be a painful process and quick proceedings are desired by most who are going through it. Don’t let your desire to finish quickly compromise your future financial security. Make sure to understand the local laws as well as your rights and responsibilities. As always, it’s wise to hire professionals to make sure that you aren’t making any costly mistakes. Lawyers and accountants can help to make sure that your retirement plans aren’t ruined just because your marriage has ended.