When picturing the financial implications of divorce, most spouses worry about their houses or alimony. Often, however, other issues warrant more attention. For some couples, retirement can be the most impacted aspect of divorce and also, the most difficult to navigate. This is especially true in Minnesota, where courts make it clear that, when one spouse earns retirement benefits, the other spouse enjoys a “just and equitable” share, merely due to their status as married.
The Role of the Qualified Domestic Relations Order
The Qualified Domestic Relations Order (QDRO) is a key tool for handling retirement-related divorce issues. This court order grants spouses the right to a portion of employer-sponsored retirement benefits. Pensions and other additional accounts may necessitate additional QDROs. In addition to providing benefits while the participant is alive, the QDRO allows for survivor’s benefits. There is technically no deadline, so it is possible to secure a QDRO after a divorce has been finalized. That being said, early filing is preferred in most situations. Once the QDRO is complete, the recipient spouse can roll it over into an IRA within 60 days without being subject to tax withholdings.
Transfer Incident to Divorce
While QDROs are typically relied upon to accurately divide assets held in 401(k)s, an alternate procedure may be required for IRA assets. With IRAs, a process referred to as “transfer incident to divorce” can be used to direct a portion of one spouse’s retirement assets to the other spouse’s account. While transfer incident to divorce may initially seem simple, penalties can easily come into play in the event of early withdrawal or other select circumstances.
As you delve into the complications of retirement and divorce, look to the Brown Law Offices for support. Call today to learn more about your options.