Married couples in Los Angeles spend many of their working years building a solid retirement plan. They may have 401(k)s, pensions, IRAs and other investments. They may be anticipating the day that they can retire, and do things together like travel, play golf and spend more time with family and friends, all things made possible through a well-rounded retirement plan.
However, life is notoriously unpredictable, and it is entirely possible that a couple will get a divorce before they have retired. When this happens, they will be faced with dividing the assets they accumulated while married, including retirement assets. Retirement assets in particular are an important part of property division, as they are often a couple's most valuable assets. In fact, a 2016 survey by the American Academy of Matrimonial Lawyers reports that dividing retirement accounts is the second most common item fought about by couples in the divorce process.
Different retirement assets are handled differently during the divorce process. For example, if a spouse has a 401(k) or pension through their workplace, and the other spouse is awarded a portion of those assets, they can only access them by executing a qualified domestic relations order. QDROs are legal documents, and as such, should be drafted by an attorney. If there is more than one workplace retirement account being divided, each account will need to have its own QDRO. If the QDRO is drafted properly, transfers made from a 401(k) to a rollover IRA may not be taxed. Also, a QDRO along with the divorce decree should state that a party is to be awarded a percentage of the asset rather than a specific amount.
While this post focused on 401(k)s and QDROs, it is also important that IRAs are transferred properly to avoid being taxed or penalized for an early withdrawal. But, as this shows dividing any retirement assets in a divorce can be a complicated process. Fortunately, professionals are available to help couples do this in the proper way.
Source: CNBC, "How to avoid mistakes dividing up 401(k) assets in divorce," Sarah O'Brien, March 7, 2018