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Use care when dividing retirement accounts in divorce

| Jan 6, 2021 | Divorce |

When people in Maryland think about dividing assets in a divorce, a house or checking account may come to mind. While those are important components, one part many people may overlook is retirement accounts. This is of particular concern for older couples who have likely had more time than younger people to build their retirement assets. Depending on the type of retirement account, there are different ways to manage splitting these important assets.

For a 401(k) or a pension that one spouse is already receiving, the transfer of assets in the event of a divorce requires a qualified domestic relations order. Depending on the agreement that spouses reach, the QDRO may specify that payments from the account get split by a specific dollar amount or a percentage. However, in both scenarios, the recipient will want professional assistance to determine the tax implications in order to maximize his or her return.

Unfortunately, a QDRO cannot be used with an IRA. The best method is to specify the transfer of funds from one IRA to another in the divorce agreement. Depending on the ages of both spouses, there may be significant penalties or taxes incurred for cashing out any of that transfer. As with other types of retirement accounts, it is a good idea to consult a financial advisor to determine the best method for divvying up assets of any kind.

Another helpful resource for dividing retirement assets in the event of a divorce is an attorney. A Maryland attorney with an extensive background in family law cases can help people from all stages of life as they work through the ending of their marriage. No matter what their circumstances may be, this can be a fresh start for everyone involved.

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