As Virginia residents might agree, divorce can be quite an unpleasant experience. Not only does it break hearts but it can also have severe financial implications. There are many financial issues that need to be addressed in a divorce. One such financial issue is division of retirement accounts. It is better to deal with the division of retirement accounts early on in the divorce process so that the entire divorce process goes smoothly.
There are certain things that a person should keep in mind when dividing retirement accounts or assets in a divorce. The Qualified Domestic Relations Order establishes the rights that a former spouse has to an existing account. The qualified accounts comprise 401(k), IRA and, of course, pension.
The QRDO outlines the percentage that is given to each individual and also addresses the process to be followed in the event of the death of a person. A QDRO is not necessary if only an IRA is involved. Those accounts can be addressed in property division agreements and these will not be taxed.
When a person is dealing with tax implications, it becomes apparent that the document is important to the process. If one spouse transfers the assets from the retirement account to the former spouse's account, it will be treated as a wholesome distribution. The person who has initiated the transfer will have to pay tax. Therefore, it may be a wise decision to consult a legal professional so that only those who should pay taxes fall in that tax bracket.
Beneficiary designation is another arena that should not be overlooked. Retirement accounts should always be updated so that only the intended recipients receive them. Property division can be complicated at times and being armed with the necessary information may prove to be invaluable.
Source: Financial Buzz, "Division of Retirement Assets in a Divorce," Steven W., April 20, 2015