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Dividing Retirement Plans During Divorce
check out the My Parenting Portal swicki at eurekster.com Dividing retirement assets is often overlooked in some divorces, but this can be a costly mistake. Next to the family home, retirement plans are one of the biggest assets of the marriage, and should be considering during settlement negotiations. The following information can help you understand more about dividing retirement plans during a divorce. Retirement accounts are divided in a divorce in one of two ways; either through the use of a Qualified Domestic Relations Order (QDRO) or the divorce decree. Knowing which way to divide a retirement account depends of the type of retirement account it is. Some courts apply the term "qualified domestic relations" (QDRO) to IRAs, but a QDRO applies to qualified plans and 403(b) accounts, not IRAs. For divorce settlements, the term "transfer incident" is applicable to IRAs. To ensure that the proper language is used in the documentation, parties involved in a divorce settlement must be sure to inform their counsel of the type of retirement plan they have. In the division of IRA assets (or award to the spouse of the IRA owner) in accordance with a court-approved divorce decree or legal separation agreement, the division is treated as a non-taxable transaction, which could be a transfer or rollover depending on the financial institution. The spouse who receives the assets (referred to as "former spouse") is required to treat the assets as his or her own and is responsible for the tax implications of adding any distributions into his or her income for the year the distribution occurs. Should an individual give IRA assets to a former spouse without receiving a court-approved divorce decree or separation agreement authorizing the change in ownership, the individual will be required to include the amount in his/her income, thus treating the transaction as a distribution to him/herself. When dividing IRA assets in the divorce decree, the document must address the retirement assets and stipulate how the division should be allocated, that is, whether the assets are shared equally, awarded entirely to one person, awarded partly to one person, etc. Some financial institutions require that the divorce decree reference the retirement account's number and the custodians name. It is important as the IRA owner, that you check with the financial institution regarding its requirements and provide this information to the court. If the retirement assets in question are part of a qualified plan, they must be divided via the use of a Qualified Domestic Relations Order (QDRO.) A QDRO is a judgment, decree, or order that gives a pension plan participant access to retirement assets that must be used to pay an ex-spouse or dependent children. One should consult an expert in QDRO preparation. It is important the plan administrator review and approve a QDRO to determine if it meets regulatory and plan requirements. To Return to Divorce and Money, Click here.
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