If you and your former spouse are going through a divorce or have recently finalized one, you know of the various decisions, both financial and personal, that have to be made regarding every aspect of your former relationship. This includes everything from child support, child custody, wills, the property you’ve accumulated while together, and especially retirement plans.
Although this is a difficult time for both of you, it is imperative you two seek legal counsel when dividing retirement funds after divorce. You can trust in the family law lawyers at The Berman Law Group to help you and your former partner split your retirement plans. Keep on reading to learn more.
What Do I Do with Retirement Plans After Divorce?
Retirement plans/funds are some of the most important and largest assets that people own, which makes them an incredibly significant aspect when it comes to divorce settlements. However, splitting retirement funds with a divorce can not only be complicated, but they’re bound to not be properly handled, as well as subject to tax ramifications. You and your spouse may have Individual Retirement Accounts, or IRAs, or your partner may have had a company-sponsored retirement plan fund, such as a 401(k).
With Qualified Retirement Plans: Use a Qualified Domestic Relations Order (QDRO)
Qualified retirement plans are retirement plans offered by employers that meet the requirements of Internal Revenue Plan Section 401(a) which allows them to receive various tax benefits. Unless you and your spouse signed a prenuptial or postnuptial agreement, if your spouse has an employer-sponsored retirement plan (i.e. a pension plan or 401k), you are legally eligible to part of that balance. You may be wondering how you could protect your part of his retirement.
The answer to this is a Qualified Domestic Relations Order, known as a QDRO document. A QDRO is a court order that is related to various aspects, such as child support or property rights, and it can also guide your spouse’s plan on how it will pay you your share of its benefits. The QDRO document is given to your former spouse’s employer’s retirement plan. After the QDRO is received then approved, you will be given the option to place that money into an IRA plan that is in your name, as well as being tax-free.
With an IRA:
IRAs are split according to the divorce agreement, not with a QDRO like employer retirement plans is. When an IRA is split in the middle of a divorce, the smartest way to transfer the funds is by moving your former spouse’s portion of the IRA through a direct trustee-to-trustee transfer. This transfer will take that to an IRA that is in the name of your former spouse.
An IRA needs to be treated as a transfer that is labeled as an “incident to divorce.” It should also be done within one year of your divorce. IRA transfers that are made after one year can be put under review by the IRS. Whoever receives the IRA after it is transferred will be the one responsible for any future decisions involving the IRA.
Seeking the Professional Legal Help You Need
If you have recently been divorced or are going through one and are having trouble understanding how to split you and your former spouse’s retirement plans, you need to make sure that you are getting the right help you need. The experienced divorce attorneys at The Berman Law Group are able to help you split your retirement plans as accurately and quickly as possible. Call (800) 883-5206 now for a free consultation.