‘Do’ and ‘Not Do’ tips regarding retirement assets in divorce
In the past several decades, the makeup of those assets has changed a great deal. Funds that might have been held in pension plans are more widely distributed. Money can be in individual retirement accounts, or joint funded accounts or stock options. With the divorce rate rising for couples 65 and older, the sum of diffused funds can make retirement money the single largest asset a couple shares.
When dividing these assets, it’s wise to consider strategies for keeping the majority of the money in the hands of the individual parties. If care is not taken, one or both of the spouses could wind up paying unnecessary taxes or penalties for early withdrawals.
If this is a concern you have, here are some thoughts from a couple of experts on what to do and not do to achieve optimal outcomes.
- Properly manage the transfer of individual retirement account funds:One spouse cutting a check to the other means taxes and penalties. To be sure it’s done right, the advice is to work with an attorney skilled in creating QDROs. Qualified Domestic Relations Orders are legal orders that identify an alternate payee (the employee’s spouse) for a designated amount.
The hidden issue in the division, say the experts, is that it reduces the amount each spouse can count on in retirement and raises the fear of having too little to last.
- Don’t put all your assets in one basket: Your home might be worth a pretty penny today, making it attractive to have in settlement. But you don’t know what the market is going to do. If you give up everything else in favor of the family residence, unexpected circumstances could leave you holding nothing, perhaps when you need money most.
The lesson is that it’s important to be sure no employee benefit is overlooked in division. And legal experience in that regard is important.