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Special considerations regarding dividing retirement accounts

Retirement accounts are complex assets that have detailed rules associated with them. Given this, these assets can raise some special issues when it comes to dividing them in a divorce.

For example, there are certain types of conduct regarding retirement accounts that can trigger penalties or negative tax consequences. Thus, one of the things it can be important to give special attention to when dividing retirement accounts in a divorce is how to avoid unnecessarily exposing oneself to such penalties or tax liabilities.  

When it comes to individual retirement accounts, one divorce division matter that touches on tax implications is the transfer incident. When an individual retirement account is being split as part of a divorce, doing this split through a proper transfer incident makes the movement of funds done by the transfer tax-free.

Another special property division issue related to retirement accounts is that certain types of retirement accounts raise special paperwork issues. For example, when splitting an employer-sponsored retirement plan in a divorce, a Qualified Domestic Relations Order will generally be needed.

The time following a divorce can be a challenging one financially. Given this, the last thing a person needs is unpleasant surprises arising in connection to the division of retirement assets in their divorce, such as the split accidentally triggering penalties or tax liabilities or the split not being done in a proper manner. Thus, retirement account matters in a divorce are not ones to be handled in a careless manner. Divorce attorneys can give information to divorcing individuals on what special issues different types of retirement accounts raise in a divorce and what can be done to avoid unpleasant surprises when it comes to the division of such accounts.

Source: Money, "Who Gets Retirement Accounts in a Divorce?," AJ Smith, Nov. 16, 2015

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