Retirement accounts are often given less consideration during a divorce than other assets since they often aren't used for many years in the future. These assets, though, may become a couple's largest assets and their distribution should be handled correctly.
Many couples that are going through the divorce process have a tendency to glaze over the division of their retirement assets as they focus on assets that are more present. This can become a costly mistake, however, as retirement accounts often times end up being a couple's largest asset. A document, called a Qualified Domestic Relations Order or QDRO, exists to define each spouse's rights regarding these accounts. It is important that the language in such an order is detailed enough to cover any potential scenarios that may arise. A QDRO can help a divorcing couple minimize the tax implications of withdrawing from their retirement accounts.
When a couple divorces, their assets and debts are distributed between them by agreement or by order of the court. Depending on the state in which a couple resides, there are different methods of property division. The majority of states, including Georgia, apply the equitable distribution method. Under this principle, any property brought into the marriage or acquired through gift or inheritance is considered separate property and belongs to the party that brought it in. Any property acquired during the marriage, including retirement accounts, is considered marital property and is subject to equitable, but not necessarily equal, distribution. The distribution of retirement accounts can be handled through a Qualified Domestic Relations Order. A QDRO is used to distribute or move funds from a retirement account of one spouse to the other without invoking any associated tax penalties.
Retirement accounts and other assets acquired during the course of a marriage are subject to equitable distribution between the parties to a divorce. To avoid any unnecessary tax consequences, it is important that any asset transfers are conducted using the proper legal documents. A family law attorney can help a party to a divorce with such distributions.
Source: Business Day, "How to divide your retirement assets in a divorce," Dec. 31, 2013
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