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Different approaches apply when dividing retirement accounts

If you and your spouse have decided to end your marriage after many years together, you may have retirement accounts to divide.

Different accounts require different types of paperwork. Here is an overview of what you may expect.

The QDRO

The purpose of a Qualified Domestic Relations Order, or QDRO, is to ensure the proper distribution of funds from a 401(k). The QDRO is a document that divides this kind of retirement account legally, ensuring that each party has the right to his or her portion of the funds. The QDRO also eliminates penalties or taxes associated with taking early 401(k) distribution. Each pension or employer-sponsored plan requires a separate QDRO.

Rolling assets over

As a result of your divorce, it is possible to receive retirement distributions by rolling them into your retirement plan. You can request a direct transfer, defer distribution until the owner of the account retires or cash out your portion of the funds. If you choose to do this, remember to update the beneficiaries listed on your account. For example, you will probably not want to continue listing your soon-to-be-ex as a beneficiary.

Tax implications

When considering how best to divide your retirement savings, think about the tax consequences. Remember that you contribute to a 401(k) or a traditional IRA pre-tax, but you contribute to a Roth IRA after you pay income tax.

Court considerations

Florida is an equal distribution state, meaning that the court focuses on dividing assets fairly rather than splitting assets 50/50 between divorcing parties. To do this, the judge will consider certain aspects of your lives, such as the length of the marriage, whether a prenuptial agreement exists, your financial situation along with that of your spouse, and your ability to earn income.

Looking ahead

Divorce is a stressful event, and the division of assets can make it even more so. The process of dividing retirement accounts can be confusing, so rely on legal guidance to ensure that the process goes forward with your best interests in mind.

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