Dividing retirement assets in a divorce

Dividing retirement assets in a divorce

On Behalf of | Nov 25, 2022 | Divorce |

If you live in Maryland and your marriage is headed for divorce, you are probably concerned about finances. One thing that you, and your spouse, will have to consider is the management of your retirement accounts.

Not everyone has retirement accounts and their division isn’t always mandated in a divorce. However, if you will be splitting these accounts with your spouse, the judge who presides over your case will issue a qualified domestic relations order (QDRO) to the plan manager of each retirement asset.

Retirement accounts in divorce

Divorce means that a couple’s lives, and households, are split in two . Any assets belonging to the spouses will have to be assessed and, in some cases, divided and distributed between them. These assets include savings, investment accounts, businesses, and real estate.

If either or both spouses have retirement accounts, private pension plans, or other assets intended for retirement, special handling is required. This is because withdrawals from these accounts or plans are either heavily penalized or simply aren’t possible.

How a QDRO works

To facilitate the division of certain types of retirement accounts without any tax penalties, a divorce court judge can issue a QDRO to the managers of retirement plans. The funds in these accounts are divided in accordance with the order and are deposited directly into the other spouse’s accounts without tax penalties for either party. While the spouse receiving retirement funds might have the option of taking their portion in cash, this can come with a heavy tax burden.

It’s easy to overlook retirement assets in a divorce, particularly if you and your spouse are still young. However, dividing these assets fairly and in a way that prevents unnecessary taxation is a critical part of managing your finances as you both move on with your lives.