Dividing workplace retirement plans such as 401ks and pensions require a court order that is separate from the divorce settlement agreement. It is important to work with an attorney who has experience drafting the necessary documents so that retirement assets are divided properly.
Retirement savings are some of the most valuable assets a married couple has. When couples divorce, contributions to retirement funds during the marriage are subject to property division so that each person gets their fair share of the marital assets.
If you’re soon to be ex-spouse has a 401K at work, then more than likely you are entitled to a piece. To divide 401Ks or pensions, divorcing couples will need what is called a Qualified Domestic Relations Order or QDRO.
To start the process, your divorce lawyer will contact the plans administrator to ensure the required steps are followed for a smooth transfer of retirement funds to the other spouse. Once a QDRO is created – a highly detailed process – the participating spouse’s plan administrator will approve it before a transfer can take place.
If a spouse is rolling over retirement funds into their own IRA, this information will be included and is not considered a taxable event. If an ex-spouse chooses to receive all or some of the money directly as part of the divorce, they will not pay the 10 percent penalty on early withdrawal, but they will pay ordinary income taxes on the money.
Keep in mind that the distribution can take time so the division should be expressed as a percentage, not an amount the other spouse will receive. Say for example, a participating spouse has $100,000 in a 401k and the other spouse is entitled to 50 percent. If this is expressed as $50,000 that is exactly what the spouse will receive when funds are rolled over or otherwise distributed regardless of whether the market shifts up or down, increasing or decreasing the amount of assets in the fund.
There are many issues to consider when dividing retirement assets in a divorce and you want to get it right. If you have questions regarding the division of retirement accounts such as 401Ks, pensions, traditional or SEP IRA’s in a divorce, contact the Libertyville property division lawyers of Schlesinger & Strauss for help today at 847-680-4970.