A divorce can be a difficult time for anyone. In addition to ending a relationship, an individual may have his or her financial future altered significantly. In most divorce cases, retirement accounts are considered a marital asset that must be split in accordance with state law. If a spouse is entitled to a portion of a 401(k) or an individual retirement account, it is important to get a QDRO or transfer incident.
Doing so ensures that the money can be transferred without being labeled as an early withdrawal or distribution. Without such an order, any money taken out of a retirement account may be subject to income taxes and penalties. An individual may also decide to have any money from a spouse’s retirement account rolled directly into his or her own account. Another option would be to defer a withdrawal until the other spouse decides to retire.
Those who are entitled to receive some or all of a 401(k) or an individual retirement account balance may want to change their beneficiaries. In the event that a child is going to be a main beneficiary, a living revocable trust may be best. The trust can then act as the beneficiary or be the secondary beneficiary of the money.
In a divorce, almost all martial assets are eligible for property division. Talking to an attorney may help an individual determine how much of his or her account may need to be divided and how to best accomplish that. In some cases, individuals and their spouses might be able to work together to divide a retirement account without the need for a formal order to do so.