During a high-asset divorce, retirement plans are often a significant portion of the marital estate. Determining how to divide these assets can be rather difficult, but it is an important part of the divorce process.
Fortunately, couples can ensure a fair division of their retirement plan assets by understanding how the process works.
Dividing the assets
When a person has a retirement plan, some of the account balance may go to the spouse right when the divorce is final. However, certain plans distribute a portion to the spouse only when the participant retires or dies. The spouse usually has to set up a Qualified Domestic Relations Order with the plan administrator to get the assets. There are also cases where none of the balance goes to the spouse, such as when the participant chooses a different beneficiary.
The distribution of retirement assets in a divorce can incur significant tax implications, especially when there are a lot of assets on the table. Retirement assets that a couple shares can result in tax penalties for both individuals. One spouse may be able to roll over the retirement assets into an IRA, which can help reduce these penalties. It is important that couples know the rules and implications of each retirement plan when they divvy their assets.
People should be as educated as possible about retirement plan assets to ensure they get what they deserve after a divorce. With the right guidance and tools, couples can make more informed decisions and protect their finances.