When considering legal separation, most people are concerned with the emotional aspects. However, to avoid future complications after a divorce, residents of Massachusetts will want to consider the financial implications as well, especially those involving the division of retirement plan assets. If not executed properly, this process can cause financial issues and tax problems later on, far after the divorce proceedings have been finalized.
A family law attorney with experience in property division can be a major asset in these situations, as there are different rules depending on the type of retirement plan. Since retirement accounts are typically the largest liquid asset during divorce proceedings, it’s important to ensure that IRA transfers are executed properly. Failing to do so may result in penalties from unintentional distribution. Similarly, a “qualified domestic relations order” or QDRO will likely be required in cases of dividing qualified plans such as 401(k)s, pension plans and Defined Benefit plans. Each spouse’s attorney can work with him or her to help avoid problems stemming from the incorrect handling of the various types of retirement plans.
Something else individuals will want to take into account is changing beneficiaries after the transfer of any asset. For example, with 401(k)s — regardless of what the will states — assets go to the ex when an ex-spouse fails to change the beneficiary designation. However, IRAs, which are not affected by state laws, do not grant beneficiary rights to the spouse automatically. This means it’s important to consider updating IRA beneficiary designation forms if an ex-spouse relinquished claims to retirements assets.
The ins and outs of dividing retirement assets during a divorce can seem overwhelming, and failing to follow proper procedures can unfortunately result in unwanted – and usually unnecessary – taxation. The guidance of a family law attorney throughout this process can prove invaluable, especially in the long term. Massachusetts couples considering divorce usually benefit immensely from securing experienced legal counsel to help them navigate the complicated issues involve in the division of marital property and assets.
Source: Divorcing? How to Split Up Retirement Nest Eggs, “forbes.com“, Duncan Rolph, Nov. 23, 2016