Are you considering filing a divorce? If so, you should know that a divorce can impact your retirement, social security benefits, and pension plans. Retirement accounts and benefits plans are a significant part of most older couples’ net worth. Thus, your divorce should address the division of retirement assets carefully and thoughtfully. Here are tips to help ensure the division will have a favorable outcome for you:
Know Your Retirement Plans Better
Depending on the kind of retirement plan you have, restrictions on the asset amount that can be withdrawn and how these funds can be withdrawn might be in place. You must understand your plan to avoid unexpected tax consequences. In fact, failure to understand your retirement plan can result in a lack of funds when you divorce. For example, a lot of pension plans won’t pay a lump sum amount and just pay the non-employee spouse every month at retirement age. If you decide to divorce, you might need cash to pay for it and other bills. Thus, you might have to re-negotiate for other assets for these financial needs.
Know What Can Be Divided in Your Retirement Plan
Alabama law requires the equitable division of assets acquired during the marriage. Some of your retirement funds may be acquired before your marriage and so won’t be included in the division. Cheap divorce lawyers in Montgomery can help ensure your spouse will only get a certain portion of your retirement.
Understand When to Get a Qualified Domestic Relations Order or QDRO
When splitting qualified retirement plans like pensions and 401(k) plans, you need to take steps to avoid tax consequences that the ERISA and Internal Revenue Code govern. Such laws impose that the benefits of a retirement participant may not be paid to any other person than them during their lifetime. But, an exception is that part or all of such benefits may be paid to a former spouse through the use of a QDRO. The order will dictate how to pay your ex while postponing taxes until your ex makes withdrawals. A QDRO must be filed sooner than later to avoid losing one’s chance to file their claim.
Address Individual Retirement Account (IRA) Division Carefully
When you address the division of IRAs, you must take considerable care, so you don’t face tax liability and penalties. Before your divorce, consider checking with your IRA financial institution to know its procedures for IRA transfers and whether or not you must get a copy of your divorce decree. The majority of financial institutions require addressing an IRA transfer in the divorce decree and having the transfer only following the entry of the decree.