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How are retirement accounts divided in divorce?

On Behalf of | Dec 31, 2020 | Property Division |

Since you got married, you and your spouse were fortunate enough to be able to invest some of your income into a retirement account like a 401(k) or Roth IRA. Now that you are on the path to divorce, naturally, the retirement plans the two of you had will not happen. Your retirement dreams have changed, but that does not mean you are not entitled to a share of the retirement savings.

Splitting up retirement plans in Murfreesboro

Like most states, Tennessee is an equitable distribution state when it comes to divorce. Marital property — everything deemed by the law to belong jointly to both spouses — must be divided up “equitably,” meaning reasonably fairly. For most couples, retirement accounts will be part of the marital property pile unless there is a prenuptial agreement that states otherwise.

Normally, taking money out of a retirement account before reaching a certain age incurs a withdrawal penalty. But there is an exception when you are transferring funds according to the terms of a divorce order. Also, most such divorce-related transfers are tax-free. To get these exceptions, the exes and their attorneys must draft a Qualified Domestic Relations Order (QDRO) that instructs the retirement account administrator to divide the assets according to the terms of the settlement.

One alternative to using a QDRO is for both exes to wait until the spouse who owns the account retires, then share the withdrawals. This may make the most sense when the exes are close to retirement age, and the ex whose name is not on the account trusts the other ex to administer the savings properly. Or the non-owner spouse can accept cash or other property as a buyout, leaving the retirement plan intact and solely the property of the named spouse.

Understanding the possibilities in asset division

Since every divorce is different, you deserve a property division settlement that aligns as closely with your particular needs as possible. Consult a divorce attorney who can help you weigh your options.

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