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Understanding retirement plans and divorce

On Behalf of | Dec 29, 2016 | Divorce |

When it comes to divorce, one of the most contentious aspects is determining the fair division of assets. If one or both partners has a retirement plan established, it can be tricky to agree on a division for the account. The value of such a plan will vary, but if it has been built on continual savings as experts recommend, it may be substantial. There are a few important principles you should understand if you or your partner will be negotiating how a retirement plan is split.

Division of retirement plan eligibility

The first item to determine to resolve any dispute is whether each spouse is entitled to a portion of the plan. In many cases, even if the retirement plan belongs to only one partner, both are eligible to receive proceeds from its division. It is also possible that plans established through an employer will be held in the names of both partners, even if only one works for the company.

Effectively separating retirement account

If it has been agreed that the retirement plan will be split, considerations should be taken to execute this effectively. There may be withdrawal fees or taxes that are applicable if the funds are extracted directly from the account. Using a qualified domestic relations order, on the other hand, can help both parties avoid unnecessary costs. This is a type of court order that authorizes the account’s separation on the ground of impending divorce.

Creating a separate retirement account for transfer

In addition to securing a domestic relations order for the account’s division, it is typically a good idea to establish a separate retirement account for the proceeds of the original account to be transferred into. This can make the transfer transaction go smoother and ensure there is no confusion as to the intended use of the funds.

Avoiding conflict with a prenuptial agreement

It is common for retirement accounts and other assets to be disputed in the midst of a divorce. One of the most effective ways to avoid this and specify the entitlement of each spouse is to draft a prenuptial agreement outlining the property rights of each partner. Postnuptial agreements can have the same effect and help you to protect your most valuable assets.

If you are negotiating the division of a retirement plan or any other marital asset, enlisting help from an attorney may be the right step. An attorney will help you better understand your rights and legal entitlements.