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Splitting retirement accounts in divorce requires skill; finesse

One of the greatest points of contention for couples who are divorcing is money and how to divide it. The division of marital assets, especially retirement accounts, takes careful planning and finesse to ensure that it is done with as little cost as possible. Colorado residents who are seeking a divorce that will include these types of marital holdings may benefit from careful planning and advice.

Right behind the issue of alimony, former spouses are most likely to fight over retirement funds and business assets, according to a 2016 poll of family law attorneys. Because there is so much at stake when it comes to the division of these types of assets, it pays to research as much as possible about the procedures that are required when dividing certain workplace accounts. If a 401(k) is to be divided, there are specific procedures that must be followed before any transfers can take place.

The first step in dividing a 401(k) is to obtain a qualified domestics relations order, or QDRO, form. This must be separate from the divorce settlement document but contain the same intention as stipulated in the settlement agreement. This order is required whether the account is a 401(k) or other retirement holding. In addition, if there is more than one account to be divided, each will need its own QDRO. Once all of the steps have been followed, the transfer or rollover can occur.

A pension plan does not require a separate order, but it is important that the divorce settlement is worded correctly to ensure that a percentage, and not a set dollar amount, is included, in the event the value of the account was to change before the divorce is finalized. There are other steps and safeguards that should be followed in order to protect oneself from excessive taxes or early withdrawal penalties. Colorado residents who are concerned about the handling of the division of marital assets may be best served by consulting with an attorney who is skilled in handling these types of assets in order to receive the most equitable outcome possible.

Source: CNBC, "Dividing 401(k) assets in divorce can be an expensive minefield", Sarah O'Brien, March 7, 2018

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