When you and your spouse decide to divorce, you’ve likely got a lot on your mind. You may not be considering taxes and retirement assets like annuities, 401ks, and IRAs. Dividing these assets can be complicated because you have to obtain a QDRO or Qualified Domestic Relations Order. This court order is separate from your divorce decree and indicates that your spouse has legal rights to part or all of a 401k. Some retirement plan administrators will require a waiting period until you or your spouse retire to divide the funds. If you’re divorcing in Colorado, it’s important to work with legal counsel when it comes to property division. Here are some options to pursue an amicable divorce agreement.
Asset exchange
In an asset exchange, one spouse will keep the 401k but will have to give the other spouse another asset that has the same worth as the 401k. This option is the least complicated but requires complicated tax calculations. Negotiations may be necessary as the account grows.
Dividing the 401k
It’s important to have a deep understanding of property division when separating the 401k, and this can be time-consuming. In this case, the retirement account is liquidated for the purpose of paying one spouse. This is not always the best option because of penalties, the legal approval process, and taxes. You’ll also have to work with a lawyer to see if you qualify for this option.
Roll the 401k into an IRA
There are usually no penalties or tax liabilities with this property division option. The receiving spouse will also be able to manage the account. This option is only for individuals over the age of 59 1/2 or those who have already left their employers.
Consulting with a qualified family law attorney is an effective way to ensure that your retirement assets are properly divided in divorce. When a lawyer on your side, your divorce has a higher chance of being finalized efficiently.