Retirement savings, including 401k or IRA plans, are often
the subject of discussion when couples are contemplating divorce. In general,
courts consider retirement funds added during the course of a marriage — and
funds accrued during a marriage — as marital property, which means they can be
divided as part of a divorce.
Depending on the type of retirement accounts you have, the
court will use a number of factors to divide them. There are two types of
retirement savings: qualified and nonqualified. Qualified plans include work
retirement plans like pensions or 401ks. Nonqualified plans include IRA and
Roth IRA plans.
There is typically a penalty when you attempt to withdraw
money early from these plans, but Congress has relaxed the standards for
divorcing couples.
For most qualified plans, the court will issue a qualified
domestic relations order that specifies how the account will be split. The
party who is seeking funds from the other party’s retirement savings is then
responsible for reaching out to the company that manages the account. The
spouse who is seeking the funds typically has a few options: leave the funds
under the same management but in a new account; direct rollover of the funds
into the spouse’s own retirement account; take a lump sum before a rollover,
which can also be taken in the form of cash. Depending on your financial
situation, it may make sense to do any one of these options, but you should
consult with your attorney and financial advisor before acting.
For non-qualified plans, like an IRA, the non-participating
spouse can either change the name on the account to his or her name or can
receive a direct transfer of funds to his or her own accounts.
Regardless of whether you’re holding retirement accounts or
seeking them from your soon-to-be-ex, your attorney and financial advisor can
help you navigate the process.
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