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Dividing retirement assets in a divorce

On Behalf of | May 9, 2023 | Divorce

Some aspects of property distribution in your divorce may be more complicated than others. Splitting assets, such as bank accounts or personal property, is usually relatively straightforward, but other assets, such as retirement accounts, could be a little more complex.

Identifying the marital property portion

First, you must determine how much of your retirement assets are considered marital property. Only marital property gets distributed in a New York divorce.

Marital property is anything acquired or purchased during your marriage, with some exceptions. Many people get married when they already have a retirement account set up.

In those cases, only contributions to the retirement account made during the marriage are marital property. For example, if your retirement account was valued at $100,000 when you got married, but you contributed $50,000 to it during your marriage, only $50,000 is subject to division in your divorce.

Options for splitting the accounts

The court’s goal is an equitable property distribution, meaning a division that is fair to both spouses. When it comes to retirement accounts, you can accomplish this by each of you keeping your own retirement account, if they are valued around the same amount, or you can split them.

Certain retirement accounts, such as a 401(k) must be split using a special document called a qualified domestic relations order (“QDRO”). Your divorce agreement may state that you receive half of your spouse’s 401(k), but to receive your half, a QDRO must be drafted and submitted to the retirement plan fund.

You must typically submit a copy of your divorce agreement signed off on by a court and a copy of the QDRO. The QDRO must contain certain information and follow specific guidelines of the retirement plan to allow the transfer to occur.

Roll over or take a lump sum?

Whether or not you need a QDRO depends on the type of retirement account. When the funds are ready, you can choose to roll them over into your own retirement account or receive them as a lump sum distribution. However, be aware of any tax consequences.

You may still have many questions about retirement plan distribution in your divorce, so it is best to speak with a professional about your specific situation.