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Property division, retirement accounts and how to split them

If you face divorce, you are probably nervous about property division, especially if you have had a long marriage and accumulated considerable assets.

Retirement accounts are probably among those assets. How will you divide accounts like your 401(k) and IRA?

The QDRO

To ensure that 401(k) proceeds are correctly divided, you will need a legal document called a Qualified Domestic Relations Order, or QDRO. This document confirms that the party you name—your spouse, former spouse or dependent—has the right to receive some portion of the funds. The QDRO also eliminates taxes or penalties that may apply when taking early distribution.

IRA tax implications

There are different tax consequences of owning different kinds of retirement accounts. For example, you make pre-tax contributions to a traditional IRA but pay tax before contributing to a Roth IRA. So, ultimately, the funds in the account may not be what you expected to receive, depending on the tax picture.

Tax laws

You also have to consider local, state and federal tax laws. The Commonwealth of Virginia follows equal distribution law, which means the court will divide assets as equitably as possible in a divorce. In dividing retirement accounts, the judge will also take into account the length of your marriage as well as your financial condition and ability to earn income. Keep in mind that if you and your spouse signed a prenuptial agreement, some exceptions could be in order.

Learning more

You may not have given much thought to the retirement accounts to which you and your soon-to-be-ex have contributed; the funds were simply part of the nest egg created for your golden years. However, educating yourself about them now will make you feel less nervous about property division. Your legal team can help you better understand the consequences of splitting retirement accounts and ensure that you will receive a fair settlement in the divorce.

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Madigan and Scott, Inc.
7880 Backlick Road
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Springfield, VA 22150

Phone: 703-455-1800
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Springfield Family Law Office