Don't Forget the Retirement Accounts/Benefits in a Divorce!

Posted By Matthew Clawson || 1-Jul-2014

Going through a divorce is terrible. If one (or both spouses) forgets or is not aware of the retirement assets (IRA and 401k accounts, military retirement, pensions, stock grants, etc.) in the middle of the fog of the stress of separation and divorce, it can cost both parties a lot. Even if the couple does think about the retirement accounts, they may consider them just another bank account that can be easily split. Nothing could be further from the truth.

Different types of retirement accounts/benefits have different rules and the State and Federal Government have different laws that apply to how they may be assessed, divided and taxed in a divorce proceeding. Experienced law firms like Clawson & Clawson LLP know these rules and how to guide the parties through the maze of retirement accounts and/or benefits.

First, the attorneys will ask the spouse-client to make a list of every single investment, including all joint or individually owned checking, savings, retirement and brokerage accounts. Don't forget cash value insurance policies. This will be a good time to review how each of those accounts is titled (are some still in your maiden name?) and the beneficiaries on each (do you want your ex-spouse to be the beneficiary of your retirement accounts after your divorce?).

Second, the attorneys will advise the spouse as to whether each party's individual retirement accounts are roughly equal or whether there is an imbalance to be remedied as part of the divorce. Don't forget that some retirement accounts do not have a cash balance; rather, they are a benefit that will not be received until an employee's retirement - but still an asset subject to division either by way of assigning a "present value" or dividing the marital portion of the benefit/account so that each of the respective parties have retirement income in their later years in life. Be careful too, that some retirement accounts have more than one component and even though there is a monetary balance on the account statement, that amount may not be the actual value of the plan. The Colorado Springs family lawyers at Clawson & Clawson, LLP have the experience and knowledge to make such an assessment, which ultimately could mean thousands of dollars difference in the division of the marital estate.

If transfers of retirement account funds are not handled properly, severe tax consequences can take a huge chunk of those funds that were supposed to go to the spouse. More importantly, if the retirement asset isn't properly revealed during the divorce because it doesn't actually have "a dollar value", the right to receive the benefit could be lost forever. The attorneys at Clawson & Clawson LLP will follow the myriad of regulations to make sure the retirement accounts/assets are revealed and that the proper Court Order is in place when you divorce to avoid tax consequences. The importance of knowing the specific of type of retirement plan we are working with, the appropriate method of division and the proper Order to be prepared, will be critical to your case. For instance, if the account is governed under ERISA a special "Qualified Domestic Relations Order" (QDRO) must be prepared to avoid these tax consequences of division. A QDRO is an agreement between the parties, signed by the parties and the presiding judge setting forth how the various retirement (and other) accounts are to be divided and treated in the divorce. For example, with a QDRO, funds from a 401(k) account can be transferred to an ex-spouse without the 10% early-withdrawal penalty—and no immediate tax is imposed at all if the money is transferred to the ex-spouse's own retirement account, such as an IRA.

The QDRO can also be invoked by the parties after the divorce is final to pay for accumulated arrearages of child support or maintenance from the defaulting ex-spouse's retirement accounts. In one Colorado case, a QDRO was entered by the court, without the ex-spouse's approval, so that the ex-spouse's arrearages would be paid from his retirement accounts.

One of the biggest financial decisions in your life will relate to retaining an attorney qualified in the area of retirement benefits and assets. The attorneys at Clawson & Clawson, LLP are knowledgeable and experienced in this area of law.

Categories: Divorce, Family Law

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