• 30
  • June
    2010

If you and your former spouse are divorcing, it is extremely important to undertake the appropriate asset protection strategies. This can help ensure that you obtain/retain all that you are entitled to as well as minimize potential tax consequences.

Today's post will examine asset protection as it pertains to the division of retirement accounts.

My spouse and I are divorcing, will my retirement accounts be divided?

If you have any of the following retirement plans, you will more than likely be ordered by the court to divide them as part of your property settlement:

• 401(k)s
• Profit-sharing
• IRAs
• Pension plans

Can I divide my retirement accounts in a way that minimizes tax consequences?

If you have been ordered by the court to divide your retirement accounts as part of a property settlement, you may consider creating a qualified domestic relations order (QDRO).

In essence, a QDRO is standard, semi-complex language that should be included in final divorce papers.

A QDRO has two distinct benefits:

• It establishes the legal right of your former spouse to receive either 1.) a set amount of payments from your retirement plan or 2.) a certain percentage of the balance of your retirement account.

• It enables your former spouse to withdraw their share of your retirement plan and deposit it (aka "roll it over") into a tax-free individual retirement account (IRA). This way there will be no tax consequences.

The next post will continue to discuss asset protection strategies and potential tax consequences as they relate to retirement accounts and QDROs.

Related Resources:
  
• Divorce and Your Retirement Accounts (Smart Money)