Updated: Sep 25, 2020
Often in a divorce case, retirement assets need to be split between spouses. This is more complicated than just writing or receiving a check from or to your ex-spouse.
The party that withdraws retirement account money, depending on what type of account it is, may face tax liability on the withdrawn funds. Take for example, a traditional 401k account withdrawal. Since this money was put into the account tax free, when it is withdrawn, you will need to pay taxes on the money when it is taken out of the 401k. Additionally, if you are below retirement age when you withdraw, you may also incur a 10% early withdrawal penalty.
So how do you split a retirement account? Usually with a Qualified Domestic Relations Order, also known as a QDRO. This is a special Order of the Court that is usually entered post-Judgment that splits off a portion of a 401k account and awards it to another person. This way, if one party withdraws their portion of the account, it will not affect the other person’s tax liability. A QDRO needs to be drafted by a professional in order to have retirement funds transferred correctly. Sometimes these transfers can take several months to be processed.
If you need a QDRO completed, call our office today for assistance. 269-381-4471