Any divorce, whether a contested or uncontested divorce, has its complications and challenges. From high emotions to the tangible concerns of real property, the end of a marriage affects every aspect of a person’s life. For some people, focusing on decisions related to the immediate needs such as child custody and spousal support can be all-consuming and the desire to put off decisions related to factors like retirement account division can be strong. However, that is not truly in anyone’s best interest.
A current article discusses the importance of ensuring that the division of investment and retirement accounts be part of the original divorce decree. The primary reason for this is to protect the investments and prevent either party from incurring unnecessary penalties or taxes. In many cases, if any disbursement of funds occurs outside of the stated divorce decree and proceedings, that disbursement is subject to federal tax withholdings, thereby reducing the amount that a spouse may receive or keep.
Similarly, if a disbursement is processed too soon before the divorce is actually finalized an early withdrawal penalty could be assessed to the spouse that is the original owner of the account if they happen to be below the age of 59 and one half years old. Spouses should also ensure that any property division agreement call out division of retirement accounts in percentages, not dollars, to account for market fluctuation.
Such divorce legal issues exemplify how challenging a divorce can be. If you are facing or in the midst of a divorce, you may consider working with an experienced lawyer to help ensure that such details do not interfere with what is in your best interest.
Source: Fox Business, “How to Split up Retirement Assets in a Divorce,” Marilyn Bowden, September 16, 2013