There are several financial issues that should be carefully considered during divorce. For example, workplace retirement accounts like 401(k)s and pensions must be divided pursuant to a qualified domestic relations order (QDRO). Also, student loans taken out before marriage and then repaid with marital funds may provide an opportunity to claim a credit when negotiating an equitable distribution of marital assets. This article lists some other important issues.
Splitting retirement accounts pursuant to a divorce requires a separate agreement, a qualified domestic relations order (QDRO). This agreement may cover a 401(k), 403(b) or a pension plan, must meet specific requirements and must be presented to the retirement plan administrator. Although a QDRO is not needed to split IRA assets, the divorcing parties should consider the timing of division to ensure that it does not produce unwanted tax effects. Additional information regarding QDROs can be found in this article.
Divorce requires that you make some important decisions, ones where mistakes will cost you either in lower income or in reduced financial assets. For example, is it better to sell the marital home or keep it in exchange for another asset? Or, is it smarter to take the 401(k) or IRA instead of the taxable account when splitting assets? There are numerous options that must be carefully analyzed so that you make the best decision for your situation. This article notes additional points to consider.
In order to divide qualified retirement assets, such as a 401(k), profit sharing plan, or defined benefit plan, a qualified domestic relations order (QDRO) will be a necessary document. This article explains the tax implications when such a division is made improperly without a QDRO. On the other hand, QDROs are not used to divide an IRA, whether a traditional IRA, Roth IRA, SEP IRA, or Simple IRA. Instead, the divorce decree must specifically lay out the terms for such a division.
During the divorce process, an important goal is to divided marital assets in such a manner so as to limit tax effects and provide growth and/or income to one or both parties. For most couples today, the bulk of their retirement assets are held in employer’s 401(k) or defined contribution plans. A qualified domestic relations order (QDRO) is a part of the divorce process and is a document that lays out the division of the 401(k). You have to expect to pay the lawyer a separate fee to draft the QDRO, but you also may be charged an equivalent fee by the administrator of the 401(k) as explained in this article.
The divorce financial analysis provided by Samalin Divorce Finance can help reduce such costs by optimizing the division of assets.