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Dividing Retirement Funds Is a Complex Divorce Element

In many divorces, retirement funds represent a couple's largest amount of assets. People spend years or even decades contributing to retirement accounts like a 401(k), resulting in thousands of dollars in accumulated funds.

Naturally, both spouses believe they are entitled to a fair portion of retirement assets in divorce, but the process of dividing these funds can be tricky. Without help from a legal professional with a high degree of skill and knowledge, couples can fall victim to many pitfalls. Examples of such pitfalls include excessive taxation, tax penalties and one spouse receiving a greater share of the funds than was intended.

One of the reasons dividing retirement funds is so tricky is that it requires court approval of a document called a qualified domestic relations order (QDRO). This document is separate from a divorce decree and couples must provide the court with a QDRO for each individual account. In other words, drafting a single QDRO to cover all retirement accounts is not an option.

The way in which a QDRO is drafted is crucial in avoiding the pitfalls associated with dividing retirement funds. A simple mistake can make all the difference in how the government taxes these funds. Further, different types of accounts, such as an individual retirement account (IRA) and a 401(k), are subject to different regulations.

The complex issues surrounding distribution of retirement plans in a California divorce make it crucial to get the legal language right when drafting a QDRO. For best results, choose a professional who possesses a diverse array of knowledge about retirement funds as well as divorce. This ensures the protection of both spouses from the start of divorce all the way through its resolution.

Source: CNBC, "How to avoid mistakes dividing up 401(k) assets in divorce," Sarah O'Brien, accessed April 05, 2018

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