Who Gets The Money?
Your getting a divorce. You’ve determined who gets the important assets…you get the house and the kids, your spouse gets the dog and the car. But have you determined who gets the largest asset, your retirement plan assets? That could be one of your more important decisions.
Even though retirement plan account balances can be one of the largest assets of a couples estate, it sometimes gets thought of last when dividing up the estate in a divorce.
Protect Yourself To Receive
Both spouses are legally entitled to the others retirement plan balances; it could be thought of as joint property. That’s not the problem, the problem is how each spouse protects their rights to the retirement accounts. If the divorce is a nasty one, spouses can attempt to play games with the retirement money.
Get A QDRO Attorney
You protect your interests by getting a QDRO – a Qualified Domestic Relations Order. This is a court order that cannot be altered.
To avoid mistakes that could cost you money long-term, get a lawyer that specializes in Qualified Domestic Relations Orders. Not all divorce attorneys are QDRO experts. When there is a large amount of retirement money involved, you need to work with an expert.
Only Qualified Money
A QDRO only applies to qualified retirement plans such as 401k retirement plans. A QDRO does not apply to retirement money in a Individual Retirement Accounts, those are handled separately.
Protect Yourself From Taxes
To avoid paying taxes and penalties on money that you do not get to keep, the best arrangement you can have in a divorce is a QDRO. If your divorce papers do not include a QDRO, you may regret it.
Under a QDRO arrangement, your ex-spouse gets their share of money from the retirement account; they also become responsible for paying the taxes on that money when the time comes, at distribution or withdrawal.
If you do not have a QDRO, you will end up being responsible for paying the taxes on your entire retirement account even though your ex-spouse gets a share of that money. Because without the QDRO the money is under your name only and the IRS would consider their withdrawal an early distribution
Caution Also Exists With IRA’s
You could still be stuck paying taxes on money your ex-spouse receives from your IRA money if your divorce papers are written up incorrectly. Your divorce papers must state that you will be doing a rollover to an IRA set up for the ex. Here’s where a good attorney comes in, they need to finalize all the small details that you may not be aware of.