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Dividing retirement assets may spark confusion during divorce

Dissolving a marriage can be difficult both emotionally and financially, no matter how short or long of a time two people were married. However, it can be particularly unsettling for those who are nearing retirement, as they may be worried about how the divorce will affect their finances in their golden years. Understanding the law when it comes to splitting retirement assets in particular is critical when navigating divorce in Texas.

For those who need to split employer-sponsored retirement benefits, such as a pension plan or 401(k), a QDRO is necessary. A QDRO is a qualified domestic relations order. An attorney can easily draft this type of order for a divorcing couple.

However, a QDRO is unnecessary if two divorcing spouses are trying to split assets in one of the spouse's IRAs, whether it is a Roth IRA or a traditional one. Still, the split must be done correctly to avoid tax penalties. The couple's divorce decree needs to specify how the division should take place, which includes spelling out the amount in the IRA and when the split should occur. The IRA custodian, such as the brokerage company or bank, must receive a copy of the couple's divorce agreement. In addition, a separate IRA account must be set up to receive the money being rolled over.

Even though property division can be confusing and even overwhelming during divorce, two spouses can make the process easier by choosing to go through negotiation or mediation rather than traditional divorce litigation. Through alternative processes to litigation, they can work on sorting out their asset distribution issues and strive to reach a mutually satisfactory settlement. A divorce attorney in Texas will provide the guidance needed to ensure that one's rights are protected each step of the way.

Source: cnbc.com, "How to avoid mistakes dividing up 401(k) assets in divorce", Sarah O'Brien, March 7, 2018

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