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What happens to retirement accounts during divorce?

On Behalf of | Jan 2, 2024 | Divorce |

One major component of going through a divorce is dividing assets. For many, retirement accounts comprise a large portion of the assets that must go through property division. Handling this isn’t always easy, but it’s necessary. 

The easiest situation occurs when both parties each have their own retirement account and those are similar in value. In that case, both parties may be able to walk away with their own account. 

Division of available retirement accounts

When there aren’t equitable retirement accounts, the available retirement accounts must be divided. If these aren’t done in the proper manner, the division will come with considerable penalties, including taxes. The way this is done depends on the type of account that’s being divided. 

If the account is a qualified account, such as a pension or a 401(k), the division is handled using a qualified domestic relations order. This is prepared as part of the divorce and approved by the court. It must include both parties and the exact method of division. The plan administrator can approve or deny the order. If it’s denied, it goes back for revision. 

For other retirement accounts, a transfer incident to divorce is used. This outlines the specific division method for these accounts so the penalties for early withdrawal can be avoided. It should be as detailed as possible so there aren’t any questions about how the division is handled. 

Ultimately, the entire property division process is critical because it can greatly impact each party’s future. Working with someone familiar with these matters is beneficial to determine exactly what’s possible. 

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