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Dividing retirement accounts and other complex assets in divorce

The division of marital property is the most time-consuming and technically difficult aspect of many divorces. The parties must list all their assets and debts, separate any personal property from the marital property, and then divide the marital property in a way that meets standards of fairness under Massachusetts law.

The whole process is rarely easy, but it can be relatively straightforward when it comes to some types of property. For instance, a savings account can typically be closed and the assets divided 50-50, or in some other ratio, depending on the circumstances and legal requirements. For other types of property, it can be much harder. For instance, in many cases the family home must be sold in order to divide the proceeds. In other cases, the couple may get the home appraised, and then work the value of the home into their negotiations over how to divide the marital assets.

Retirement accounts are especially difficult to divide. IRAs, 401(k)s and other types of retirement accounts are meant to acquire value over time, and can escape tax penalties if the owner waits until after a specified age to withdraw funds. If a person has a retirement account before marriage, and it continues to accumulate value during the marriage, the account can be partly personal property and partly marital property. Furthermore, withdrawing funds from the account to pay for a divorce settlement can mean incurring tax penalties and other financial consequences that devastate the value of the account.

Fortunately, there are a couple ways around this problem. One is through a Qualified Domestic Relations Order, or QDRO. This is essentially a court order that allows the parties to divide the assets between them in a transaction that does not trigger tax penalties.

Those who are going though a divorce should discuss all their legal and financial options with an experienced lawyer.

 

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