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Divorce and Retirement Plans

If you are going through a divorce and you or your spouse has money in a retirement plan, you will most likely be required to share those funds.  In some cases, the funds may be awarded to only one of the spouses.  It is important to know how to handle a retirement account division so that the spouses receive their correct share.  The rules for division vary depending on the type on retirement plan it is.  Below are some questions about divorce and retirement plans and answers to help clear it up a bit.

How would my wife and I split our IRA and 401(k) that we have been paying into?
You can either award it all to one spouse or you can divide it up.  If one of the spouses has been paying into that 401(k) or IRA prior to marriage then his separate estate would have a claim to part of that retirement account as non-marital property.  In some states, including Georgia, the court looks at the balance on the date of the marriage as that spouse’s property and everything after that is may be subject to the division.  When settling the division of a retirement account, it is best to divide based on percentages rather than a specific dollar division.  If you divide the retirement accounts by dollars and the market takes a plunge after you reach an agreement, that split is going to be affected.  This is because the person giving up a part of their retirement account, will be giving the same dollar amount agreed upon, although the overall balance of the account may went down dramatically.

Will a divorce affect my pension plan?
A spouse can buy out the non-participant spouse or give them a share of the benefits.  It can be assumed that one of the spouses has earned the pension through their employment and the other spouse does not have their own pension.  You could place a value on the pension and give it all to the husband and let the wife receive property of equal value or you could divide the pension by a court order that is 50/50 or some other division that both of the spouses agree to.  It is advised when settling the division of a pension to take into account how much time working toward the pension plan was actually during the marriage.

How will a divorce affect social security benefits?
The spouses have to be married at least 10 years for one spouse to be able to take advantage of the other’s social security, if the spouse doesn’t have work credits that exceed half of the ex-spouse’s.  In the case of death, the benefit that you can claim is one hundred percent (100%) of what the now deceased former spouse’s retirement check would be.  It’s not limited to the most recent spouse or current spouse.  For example, if a man had serial marriages of ten (10) year spans and none of his three wives have benefits that exceed his benefits, all three of the ex-wives can withdraw one hundred percent (100%) in survivor’s benefits.

When dividing a retirement account, you want to make sure you don’t lose any tax advantages.  A Qualified Domestic Relations Order (QDRO) will be required to transfer a share of retirement funds from the spouse participating in the retirement plan to the other spouse.  QDRO’s resemble transfers incident to divorce in that they are tax-free transactions as long as they have been reported correctly to the courts and the IRA keeper’s.  The receiving spouse may roll QDRO assets into their own qualified plan or into a traditional or Roth IRA in which case the transfer will be taxed as a conversion but not penalized. Any transfer from a qualified plan after a divorce settlement that is not classified as a QDRO by the IRS is subject to full tax and penalty.

If you are facing a divorce and asset division is an issue, call us at 770-609-1247 to discuss how we can best assist you.

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