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Splitting Retirement Assets in a Divorce

In a high asset divorce, there are many things that need to be split equitably between the spouses. Some are easier to split than others. Even a vehicle or marital home is easier to split than an IRA, pension, or another retirement plan. Retirement plans are even harder to divide up when they were created before the marriage took place. 

When both spouses have retirement accounts, the combined balances should be considered along with all other assets. Ideally, it’s best to not have to split retirement assets, especially if each spouse has their own accounts. If you do decide to split your retirement accounts, you will need a qualified domestic relations order (QDRO).

Divide Retirement Assets Using a QDRO

A QDRO is required to split a 401(k) or pension in a divorce. It is an order issued by a court or state agency that creates or recognizes the right of an alternate payee to receive all or a portion of the benefits payable under a retirement plan. It has to be done under a domestic relations order, which means it is typically done in a divorce for the benefit of a spouse or child.

There are two ways to divide retirement assets using a QDRO. One way awards a separate interest in the account balance, while the other allows a divorcing spouse to share in the payment of the benefits. Drafting a QDRO can be expensive, so work with your divorce attorney and plan administrator so you include the right language. At a minimum, a QDRO must contain the following:

  • Name and mailing address of the participant and alternate payee 
  • Name of each plan to which the order applies 
  • Dollar amount or percentage of the benefit to be paid to the alternate payee
  • Number of payments or time period to which the order applies

Once both parties agree to the terms, the account owner gives the document to the plan administrator.

The process is often complicated. The rules for splitting retirement assets differ based on the type of retirement plan. Plus, transferring retirement funds to a former spouse can have serious tax consequences if done incorrectly.

In terms of retirement plans, a 401(k) is the easiest to split because the account value is known. If one spouse has a 401(k) worth $100,000, the couple could agree in the QDRO to split the account equally. This means $50,000 of the 401(k) balance can be transferred directly to the other spouse’s IRA without incurring any taxes or penalties. If the recipient spouse pockets the money instead, they will owe income tax on the money. In either case, there is no 10% penalty for early distributions.

Contact Us Today

Retirement accounts may be a person’s largest asset. These assets are also difficult to divide in a divorce, so it’s important not to handle these issues on your own.

Seek legal help from the Ohio high-asset divorce lawyers at Lawrence Law Office. We can connect you with the right resources so you can effectively handle your retirement assets in a divorce. Call our office at 614-228-3664 or fill out the online form to schedule a consultation.

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