Some couples who are going through a divorce have accumulated considerable retirement accounts during the time they were married. These accounts will have to be split during the property division process, but it’s not always easy to do this.
There are several things that you have to consider if you’re in this position. Because the retirement accounts are part of the assets that were part of the marriage, they have to be balanced in the property division.
Consider the number of retirement accounts
The number of retirement accounts and the value of those accounts must be considered. If each party has their own account and those are of similar values, they may each keep their own account. If each person doesn’t have their own account or if the accounts aren’t of similar value, they’ll be subjected to division.
Obtain an accurate value for the accounts
Valuating the retirement accounts is an important step in the division. The balance of each account may not be the value, so avoid the temptation to divide the accounts based on the numbers on the account statements.
Balance the property division process
Never focus only on the retirement accounts during the property division process. These accounts must be balanced with the other assets and the debts that are part of the divorce. Determining how to divide these equitably may take some work, but it ensures that you have the best financial footing when you start your single life.
Obtain the proper paperwork
Some retirement accounts, including a 401(k) and a 430(b), require a special document known as the qualified domestic relations order. Others, such as IRAs, use a process known as a transfer incident to divorce. Getting the proper documentation for each can help to get the required retirement account proceeds transferred to the new owner as efficiently as possible. In some cases, this means that the transfer occurs without any immediate tax liability.
