WHAT HAPPENS TO RETIREMENT SAVINGS IN A DIVORCE?

Retirement accounts, pension plans and social security will factor significantly into your divorce settlement agreement - even if you're not nearing retirement age. For many couples, retirement accounts and/or pension plans represent a considerable chunk of their net worth. As such, they all must be addressed in divorce settlement agreements. Unfortunately, though, dividing retirement accounts and pension plans is complicated and has tax implications.

If you're divorcing in Arizona, keep in mind that retirement funds saved or added during the marriage are typically treated as marital property. That includes funds contributed by an employer along with any appreciation due to the stock market. If you do not have a prenuptial agreement, all of those marital retirement funds will usually be divided equally by the Court. However, if a spouse enters the marriage with money already in his/her 401K or other retirement account, those funds are considered separate property and are not included in the division of assets.

Any retirement assets that qualify as marital property can be divided, but the process by which these funds are divided depends upon a number of factors. For starters, the court must adhere to federal guidelines when dividing funds in 401(k), 403(b) and other similar types of plans. In contrast, state laws dictate how IRAs are divided. It's critical that your divorce settlement agreement clearly spells out how the assets are split and how those funds will be transferred.

Division of a 401K plan and many pension plans require a Qualified Domestic Relations Order (QDRO). If your divorce settlement agreement states that you will divide a pension and/or 401K plan, a court must order a Qualified Domestic Relations Order, commonly abbreviated as QDRO. (Note: A QDRO is not necessary to divide an IRA or a SEP. Also, military pensions, federal, state, county and city retirement plans have their own rules regarding division during divorce.) A QDRO will instruct the plan administrator on how to pay the non-employee spouse's share of the plan benefits. A QDRO allows the funds in a retirement account to be separated and withdrawn without penalty and deposited into the non-employee spouse's retirement account (typically an IRA). Because QDROs are so complicated to prepare, most attorneys outsource their preparation to a QDRO specialist.

Lasiter & Jackson, PLLC have more than 40 combined years of experience in handling divorces with retirement assets. Please contact us to thoroughly discuss the merits of your case.

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