For Colorado couples who are preparing the end their marriage, understanding how to properly divide retirement assets can be difficult. Each type of retirement account can have its own set of rules and guidelines for division, and failing to meet those stipulations can mean lost wealth for all parties. This an area of property division that deserves the attention of a skilled divorce attorney, as the outcome will have a lasting impact on the financial standing of both spouses.
One thing to consider when looking at the division of retirement assets is the fact that not all retirement plans are created equal. For example, a Roth IRA is a type of investment in which the taxes are paid up front, at the time that contributions are made to the account. This means that when the time comes to withdraw those assets, there will be no taxes due. A traditional IRA or 401(k) has a deferred tax structure, where taxes are paid at the time the wealth is withdrawn from the account.
Another issue that many couples face is in regard to a defined benefit plan. When the value of the plan is split between the parties but the plan itself remains intact, the person who “owns” the plan is the one who gets to call the shots in terms of when the distributions will begin. That leaves the other party with no control over when the benefit can be accessed, which can be a problem if the two do not agree on when to begin drawing payments.
When it comes to divorce and retirement investments, there is no such thing as being too informed. These decisions are far more complex than splitting up the family photos or hashing out who gets to keep the wedding china. Retirement income is an essential component of a happy late life, and Colorado spouses who are preparing to divorce should consult a qualified family law attorney when working through these issues.
Source: U.S. News & World Report, “12 Steps to Protect Your Money in Divorce“, Christine Giordano, Aug. 15, 2016