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.