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Tips to keep in mind when dividing retirement accounts

When a New Jersey couple gets a divorce, they might have retirement accounts that need to be divided. For some couples, a retirement account may be the largest asset they own. However, it is important that it is divided correctly in order to avoid costly taxes and fees.

A workplace retirement plan, such as a pension plan or a 401(k), will need a document known as a qualified domestic relations order before it can be divided without penalties. The QDRO should be prepared by a professional who is accustomed to working with the documents, and it should include the terms of the divorce agreement as it relates to the retirement plan. The QDRO should specify how the distribution will be made. For example, it might be rolled over into an IRA. A person could also receive it directly, and although this is an exception for which there will not be a penalty, the person will have to pay taxes on the distribution.

The QDRO should also specify percentages instead of amounts in defining distributions. The reason for this is that the value of the retirement account may change before the distribution is made. A spouse should also not agree to removal as beneficiary on a 401(k) until after the divorce is final.

Property division is one element of divorce that a couple will need to negotiate or have a judge make a decision about. They may prefer to negotiate with the assistance of their attorneys since this may provide them with more flexibility. One option for couples is for one to keep the retirement account and the other to take another asset of equal value, but it is important to take any costs associated with the asset as well as likely appreciation or depreciation that may affect its value.

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