Marital assets and property, including retirement savings, are divided during the divorce process. However, only the contributions and growth made throughout the marriage will end up on the chopping block. Any contributions you made before tying the knot or after you filed for divorce will not be subject to division. Of course, dividing retirement assets is not nearly as straightforward as it might sound and one wrong step can result in avoidable tax implications, so it is crucial to hire experienced legal guidance.
Dividing Retirement Assets During a Divorce
As you know, withdrawing retirement assets before the age of retirement will result in an early withdrawal penalty fee. To ensure you do not incur these penalties while redistributing some of your assets during the divorce process, you will need a Qualified Domestic Relations Order (QDRO). If your retirement plan is not covered by the Employee Retirement Income Security Act (ERISA), a QDRO will not apply to your circumstances. For example, if you have a military or government pension, you will not need a QDRO since they are governed by other laws.
If you have concerns about dividing these assets, you can offer to trade an asset of the same value. Your spouse does not necessarily need to accept your offer, but if you are on amicable enough terms, this could be one way to simplify the situation.
In some cases, if both parties have similar retirement plans and made comparable contributions, a judge might allow them to keep their respective plans and forego dividing these assets. However, such a situation is rare and, more often than not, spouses must either acquire a QDRO or agree on trading another asset of the same value.
If you are on the receiving end of your former spouse’s retirement benefits, you have a few options for receiving the money if the assets are coming out of a 401(k) plan. You can roll them over into your qualified retirement plan, defer taking a distribution until your former spouse retires, or you can cash out your portion of the balance. However, keep in mind that if you are not 59 ½ years of age at the time of the payout, you might have to pay income taxes on it, in addition to a 10% early withdrawal penalty fee.
Schedule a Consultation with an Experienced Divorce Attorney!
If you are getting a divorce and have retirement assets, you need an experienced attorney on your side to ensure the process goes smoothly and does not result in unnecessary penalties or fees. At H. Benjamin Perez & Associates, P.C., our divorce team has the knowledge and insight necessary to effectively represent your case and protect your interests. Too much is at stake, so put your trust in a top-rated team before moving forward with this life-changing decision.
Contact us today at (646) 770-0989 to discuss the details of your case with one of our experienced divorce attorneys and learn more about how we can assist you.