Do you know how to divide retirement accounts in your divorce?

On Behalf of | Nov 11, 2021 | Divorce |

A lot of people who get divorced worry about their long-term financial stability. This is understandable given the significant financial ramifications associated with marriage dissolution. While California is a community property state, meaning that your marital assets should be divided evenly, retirement accounts that are improperly handled could end up facing significant tax consequences. Therefore, it’s imperative that you know how to handle these assets if you truly want to protect your long-term stability.

How to safely divide retirement accounts

If you’re dealing with something like a 401(k), then you’re going to have to secure a Qualified Domestic Relations Order (QDRO). This order allows a retirement plan’s administrator to release retirement funds without incurring a tax penalty.

The party who receives a share of this retirement account may then take a lump sum payment, which will be taxed for early withdrawal, or he or she may wait until the initial account holder retires, at which time the funds can be withdrawn without tax consequences.

IRAs, on the other hand, don’t require a QDRO. Instead, funds from the account can be rolled into a new, separate account without penalty. Sometimes the account holder decides to move his or her portion of the fund to a new account and rename the old account in the other spouse’s name. So, you have several ways to deal with this kind of retirement account.

Know how to competently address retirement accounts in your divorce

Keep in mind that this is just a brief look at how a few retirement accounts are handled. The truth of the matter is that you may have a lot of different retirement accounts and pensions to deal with during asset division. In those circumstances, it’s probably best that you discuss your situation with an experienced attorney to ensure that you’re handling everything properly and are receiving your fair share of the marital estate.