Logistics of dividing retirement accounts through divorce

The true cost of divorce can be enormous. Sure, there are oftentimes emotional attachments that must be severed, if they are not already, and losing precious time with children can feel like a gut punch. The marriage dissolution process itself can be time-consuming and emotionally trying. Yet, while the emotional effect may be more than enough to leave Floridians feeling overwhelmed, the financial ramifications of divorce have to be dealt with competently unless these individuals want to find themselves losing out on property to which they are entitled.

One of the most common and most valuable assets subject to divorce's property division is the retirement account. Of course, there are many types of retirement accounts, and different division rules apply to each. But, they all need to be handled with extreme care during the marriage dissolution process, as failing to do so could cost an individuals a significant amount of money.

For example, an IRA that is not treated as a transfer incident to divorce may be subjected to tax penalties. Only by clearly delineating that the withdrawal is incident to divorce can one avoid taxation and roll over his or her portion of the account into a new IRA.

The same holds true for other retirement accounts that may be subjected to a Qualified Domestic Relations Order (QDRO). A QDRO allows other retirement assets to be withdrawn without penalty for the purpose of transferring them to an ex-spouse at the time of divorce. Because improper transfers can be costly and hold up the divorce process, those who are considering or need to divide retirement accounts need to do so with excellent attention to detail.

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