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Your divorce, property division and the retirement accounts

If you and your spouse are facing divorce following a long marriage, you likely have significant assets.

When it comes to property division, the goal is to divide your assets as equitably as possible, and your retirement accounts require special attention.

Retirement account distributions

You and your spouse may have retirement accounts such as 401(k) plans or pensions. The distribution of each employer-sponsored plan requires a qualified domestic relations order (QDRO) approved by both the benefits administrator and the judge. The QDRO eliminates penalties or taxes from the process of taking early distribution of the plan or pension funds. If either of you has an individual retirement account, the tax-free movement of funds requires a transfer incident.

Beneficiary updates

There are various ways to receive retirement account distribution in your divorce. You can cash out your portion of the funds or defer taking a distribution until such time as the account owner retires. A common method of accepting your share of the funds is to roll the assets over into your own retirement plan through a direct transfer. No matter which method you choose, remember to update your beneficiaries. If your child is the primary beneficiary, you might consider establishing a revocable living trust as a primary or secondary beneficiary.

Factors to consider

In making determinations concerning the division of your assets, the court will consider various factors including the length of your marriage and the contributions you and your spouse made to the union. Remember that different rules apply to different types of retirement accounts and splitting those accounts properly will be a high priority in the property division phase of your divorce.

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