Going through a divorce is often a painful and complex process. In addition to being an emotionally charged time, you are expected to make major decisions on financial issues that can impact your future.
Although divorce might be the best decision for you, you may desire to avoid it because you are afraid of losing your hard-earned retirement or pension accounts. This is understandable.
However, there are many things you can do to protect your accounts and minimize the negative financial consequences of a divorce.
Study your retirement plans
Once you’ve decided that you are definitely going through with your divorce, review the details of all your retirement plans. Most plans have specific rules that must be followed for dividing the accounts during a divorce.
These rules can vary depending on the type of plan and the company administering the plan. They can also be confusing and complex.
Many times, financial professionals handle the asset division and make sure everything is done according to the correct procedures, to avoid additional costs or penalties.
Accurate values are important
When your divorce begins and you start negotiating how your assets and debts will be divided, it is important to have a correct value of your accounts. Obtain current statements and verify their accuracy with the help of a financial professional or your divorce attorney.
Unless you and your spouse are on relatively equal financial ground and both agree that each of you will keep what is yours, it is likely that you will have to part with a portion of your retirement accounts. Therefore, having a precise valuation is important.
Have copies of all documentation
When your divorce is finalized, obtain copies of your final divorce agreement stating how your accounts are to be divided and send them to the account or plan custodians.
The division is usually accomplished through a document called a qualified domestic relations order, which allows division without the usual penalties associated with a withdrawal.
Divorce is rarely pleasant, especially the asset division process. Understanding the rules and potential financial impact can help the process go smoother.