Whenever a married couple decides to divorce, they must come to an agreement on how they intend to divide their assets. Common assets available for division include the family home, investment accounts, debts and even household items. The most difficult items to divide are often less tangible assets like life insurance and retirement accounts. Minnesota readers may find the following blog on property division and retirement accounts intersting.
For many couples their largest asset is their retirement account. To make matters more complicated, there are a number of different types of retirement accounts, each with their own rules. Common retirement accounts include a 401(k), IRA and pension. Calculating the value of retirement accounts can be complex, especially if the account is a defined benefit that will ultimately pay a monthly income, such as a pension, versus a defined contribution retirement account.
In addition to getting an accurate property valuation, the couple also needs to decide how they want to divide the asset. In some cases, dividing a retirement account in half can have serious tax consequences. Some accounts are also difficult to assign. In such cases it may be necessary to get a qualified domestic relations order. A QDRO allows a spouse to "roll over" the payment into their own retirement account, deffering any income tax implications.
A QDRO, however, is not appropriate in all cases. Furthermore, due to the complex nature of a divorce asset split, and the costs associated with doing it wrong, it is important to work with an experienced professional. Doing it right the first time is worth every penny saved.
Source: Financial Post, "Splitting up and then splitting stuff," Jason Health, March 13, 2013
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