Divorcing couples may encounter disputes related to child custody, child support and property division, including dividing up retirement assets. Because understandable concerns may arise when dividing a 401(k), and there may be tax and penalty concerns associated with the division process, it is important for couples to understand how retirement accounts are divided, especially during a high asset divorce.
It is important for couples to be familiar with their assets and know how to prioritize their divorce-related concerns and property interests. Because there can be tax implications and costs associated with different property and assets the couple owns, prioritizing interests in important. According to a 2016 American Academy of Matrimonial Lawyers study, 401(k) assets rank high on the list of assets couples fight about during their divorce. The top three acrimonious divorce issues are alimony, retirement accounts and business interests.
It depends on the type of retirement asset that is being divided as to how it will be accessed and divided. If it is a workplace retirement plan, either a 401(k) or pension plan, it will be accessed through a qualified domestic relations order or QDRO. Because the process can be complex, it can be helpful to have trained guidance during it. The QDRO should state the percentage amount each spouse will receive and it is also important to ensure beneficiary names are not updated until following the divorce. Individual retirement accounts should be split according to how it is outlined in the divorce settlement agreement, taking taxes and potential penalties into account.
Because the division of retirement assets during divorce, especially if the couple has a high value retirement account or if the divorce is considered a high asset divorce, can be complicated and, at times, contentious, it is important for divorcing spouses to be familiar with the process. Knowing what to expect and how to direct the division process based on their needs can help divorcing spouses protect their interests during the process.