As you and your spouse discuss your upcoming divorce, understanding what is and what is not marital assets is important. Unfortunately, many divorcing parties fail to realize what they are entitled to until it's too late. To find out more about qualified domestic relations orders (QDRO) and what they mean to you, read below.
Marital Property Pointers
Married couples divide their property based on several factors. The state of residence governs the overall divisions. All divorcing couples live in either an equitable distribution or a community property state. Also, the time you acquired an asset is an important factor. Anything you obtained after you officially wed is considered marital property. The exceptions are gifts to only one of you and inheritances. Retirement savings are a marital asset also — at least, the portion funded after the marriage began. However, this type of asset deserves more attention.
Just For 401(K) Owners
In theory, nearly any type of retirement savings can be considered a marital asset. However, a 401(K) requires a separate action apart from the usual divorce proceedings. Here is what divorcing parties need to know about a QDRO for a 401(K):
- Speak to your divorce lawyer about any retirement funds early. A QDRO takes time to process, and you want the judge to approve at the same time the divorce is final. A QDRO may not be possible once the divorce is final, however.
- The amount of money the spouse is entitled to depends on the divorce agreement, other property divisions, and where the couple resides.
- With a QDRO, the parties may withdraw any amount of money (or all of it) without incurring any penalties. However, the money must be "rolled" into another qualifying retirement account before tax time, or the recipient will have to pay taxes on the money as income. Do your homework and have an account ready so the funds can be transferred quickly and seamlessly.
- The name on the account is irrelevant. Even a spouse that has not earned any income during the marriage may be entitled to money using a QDRO.
Unfortunately, this type of marital asset can create problems with couples who don't agree on other issues. The owning spouse may be unwilling to share the money made from their income. However, divorce law views the funds as money that would have been used for both parties either during the marriage or at retirement time. Speak to your divorce lawyer about getting started on the QDRO paperwork so things can be settled before the divorce is final.
For more information, contact family lawyers near you.
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