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What is necessary to transfer a retirement plan in a divorce?

On Behalf of | Jun 1, 2020 | Divorce & Legal Separation |

You may have spent your career climbing the corporate ladder and have seen significant financial success along the way. However, even people who have seen professional success may find themselves in a troubled marriage. For those in the Denver metro area who are retired or are near retirement, how their retirement savings will be split in their divorce may be a major concern.

Dividing an IRA versus a 401(k) in a divorce

How a retirement plan is split during the property division process depends on the plan itself. IRAs are divided through a process called “transfer incident to divorce.” However, a 401(k) is divided through the use of a “qualified domestic relations order” (QDRO). It is important to understand what these terms mean, so you can make informed decisions with regards to your retirement savings and the division of assets in a divorce.

Both a “transfer incident to divorce” and a QDRO are tax-free ways to transfer retirement assets, as long as they have been reported in an appropriate manner. The spouse retaining the 401(k) can roll the funds into their own qualified plan or an IRA through a QDRO. With regards to IRAs, the divorce decree should specify that the division of the plan is to be treated as a transfer incident to divorce and the movement of the funds can either be completed through a rollover or a transfer, again, as specified in the divorce decree.

Attorneys can assist when dividing retirement plans in a divorce

Ultimately, retirement accounts can be some of the most valuable and most complex assets that must be divided in a divorce. Neither spouse wants to see their quality of life diminish due to an unfair division of retirement plans. This post only scratches the surface of retirement plans and the property division process, and it should not be relied upon as legal advice. Instead, those who are near retirement or are already retired may want to consult with a family law attorney if they feel divorce is on the horizon. Family law attorneys in the Broomfield area can work with experts to ascertain the value of assets for property division purposes and understand what is necessary to legally transfer a retirement plan.

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