How to save retirement assets during a divorce
New York residents can prevent some unnecessary loss of retirement assets when getting divorced with the right information.
New York spouses who may be facing a divorce as this new year begins can find themselves overwhelmed with the number of issues to face. From emotional challenges to financial losses and decisions, ending a marriage touches every part of a person’s life. Loss is a part of divorce in many ways but there can be opportunities to minimize some losses by taking the right steps. Splitting retirement accounts is one area into which this concept comes into play.
What is the risk when splitting retirement accounts?
Certainly the loss of any portion of a person’s retirement can be devastating. For persons close to the age of retirement or perhaps those who are already retired, this can be even more serious. Forbes published information provided by the National Center for Family and Marriage Research that indicates more and more people over the age of 50 become divorced around the country than in prior generations.
However, even when splitting funds cannot be avoided there are ways to avoid further losses. If some specific procedures are not followed when determining the property division settlement in a divorce, split retirement assets can become subject to very high taxes as well as early termination penalties. These taxes and penalties do not have to be encountered and can help to save people valuable money.
How can taxes and penalties be avoided?
The utilization of a Qualified Domestic Relations Order is noted as a recommended course of action by both Fox Business and the Tampa Bay Times. This legal document clarifies to the court, to tax authorities and other appropriate entities that any disbursement of retirement funds is pursuant to a divorce decree. By doing this, taxes and penalties that would be assessed when funds are received when otherwise not allowed are avoided.
Forbes adds that spouses should take care to reinvest their retirement monies into new qualifying accounts within the stipulated timeframes and cites the example of a California woman who chose not do this and to instead simply keep the money she received. As a result of her failure to reinvest 401K money from her former husband’s account, the woman was faced with a large tax bill.
Check with an attorney
Because of the far-reaching effects any financial split during a divorce, it is highly important that couples in New York get legal input before engaging in decisions regarding retirement accounts or other valuable financial assets.
Keywords: divorce, retirement, assets