How Are Retirement Plans Divided In Divorce?
You may be surprised to learn that courts divide retirement plans in divorce proceedings. As you navigate divorce, any savings for retirement may be split between you and your spouse.
In most situations, the focus on retirement savings is usually on protecting them from taxes and other penalties rather than how they will be divided during divorce. Many retirement accounts can have penalties if you access the money before a specific age.
When dividing retirement accounts, following specific procedures for divorce and transferring retirement accounts is essential to avoid taxes and penalties. You also want to fight to ensure you’re getting your fair share of retirement plans, even if you didn’t contribute to them as a non-working spouse.
If you’re facing divorce, it’s recommended that you work with a divorce attorney because dividing assets can be complex, including retirement accounts. Your divorce attorney can help you protect your rights and interests in divorce.
Contact Campbell Law today to learn how we can help you through divorce.
Retirement Plan Division
It’s common for retirement plans to be divided in divorce. Retirement plans are included when possessions are divided in an equitable division in divorce. This means that IRAs, 401ks, pensions, or any other retirement accounts are subject to division.
When people get divorced while under the age where they can access retirement accounts, there are special procedures for how these accounts can be split. Depending on the type of account, there will be different steps for division.
Splitting an IRA In a Divorce
Contributions to IRAs made during a marriage are marital assets subject to division. IRAs have specific rules on how and when to access funds without penalties.
It’s essential that you transfer and divide your IRA funds correctly. To avoid penalties, splitting your IRA must be outlined in your divorce agreement, and you must file a transfer incident to divorce.
Dividing an IRA can be classified as a transfer or rollover by an IRA custodian. The recipient of these funds will take ownership of the assets when the transfer is complete. After the transfer, they will assume sole responsibility for the tax consequences of any future transactions or distributions.
If you fail to label the change correctly, you’ll have to pay taxes on the amount transferred and incur an early withdrawal penalty. These funds don’t come from the amount transferred but are your responsibility to pay separately.
Splitting your IRA with your ex is not recommended if it isn’t outlined in your divorce agreement. If the courts don’t approve the division, you may have to file an amended tax return listing the amount you sent as ordinary income.
How Are Pensions Divided In Divorce?
Dividing or splitting prions can be a different process because of restricted access. Officially dividing pensions or 401ks may not be possible until the parties involved reach retirement age.
Pensions and 401ks are divided by a Qualified Domestic Relations Order (QDRO). A QDRO can divide qualified retirement assets between the owner and current or former spouse or dependents.
QDROs are implemented during the divorce. The division outlined in a QDRO doesn’t take effect until the owner of the retirement account reaches the age at which they can access the account.
Changing Beneficiaries
Having your spouse listed as a beneficiary on your retirement account is common practice. After your divorce is finalized and you’ve divided the necessary retirement accounts, you’ll likely want to remove your former spouse as your beneficiary.
Changing your beneficiary is important in protecting your retirement accounts after divorce. It’s important to remember to change your beneficiary so your ex doesn’t receive funds from your accounts if you die.
Contact a Divorce Attorney Today
Going through a divorce can be a stressful time. There are a lot of things that can be affected and split by a divorce, including your retirement accounts.
A divorce attorney can help you through the divorce process and ensure you follow all steps mandated in the divorce agreement. Working with a trusted attorney helps you protect your rights and finances.
Contact Campbell Law today to learn more about how we may be able to help you through your divorce and retirement account division.
Jason E. Campbell
Attorney
Attorney Jason E. Campbell was born and raised in Greenville, Mississippi, and serves clients in the northern and central Mississippi areas with divorce, custody, criminal, and personal injury legal services. A graduate of Delta State University and Florida Coastal School of Law, Jason is dedicated to helping his clients throughout the legal process with compassion and determination.
Campbell Law Firm, P.A.
