In many divorce cases retirement accounts are the biggest, or at least one of the biggest, assets.  Because of that, it is imperative to understand the options for transferring and dividing retirement assets in a way that maximizes the benefits and minimizes taxes.  Informed Consent is the Most Important Thing when Dividing Retirement in Divorce You don't want to make significant financial decisions about your future without understanding the financial consequences.  Retirement accounts are complicated, vary greatly in their requirements & plan details, and can result in significant tax liability.  If you don't feel fully informed when agreeing to how a retirement account or multiple accounts are being divided, then you are taking a financial risk that most likely cannot be undone once your divorce is final.  To avoid making uninformed or bad decisions, consult with retirement division and financial experts for information and advice before making these deci...

There are a number of questions that must be answered when dividing a retirement account in a divorce.  Divorcing couples are often focused specifically on the amount or percentage of the account funds that they are dividing.  It is also important, though, to identify the date of that division, and whether investment changes are included or not.  This information is necessary because dividing a retirement account is not as immediate as dividing a liquid asset. Dividing a retirement account in divorce requires a special court order (usually called a Qualified Domestic Relations Order or QDRO) .  The process of obtaining and implementing one of these orders is not immediate, and requires approval by both the court and the plan's administrator.  During this time, the account will change value.  Accounts change in value due to market fluctuations, but also due to withdrawals, loans, and ongoing contributions.  All of these changes can create havoc wit...

This is a guest post from Justin L. Kelsey's consulting business,  Gray Jay Endeavors LLC .  Gray Jay provides QDRO and DRO preparation, and education and consulting services relating to retirement division in divorce.  Gray Jay has been working on resources to assist attorneys, mediators, and parties in this process, such as the following checklist: Download the Retirement Division Checklist Retirement Division Basics: In order to divide retirement as a part of a divorce, there is a one-time exception to the normal tax implications for withdrawals from retirement.  This exception allows a non-taxable transfer to a spouse's or ex-spouse's retirement account.  This can include the division of pensions, 401ks, IRAs and other types of retirement.  The document required to complete this transfer is usually called a Qualified Domestic Relations Order (“QDRO”) or Domestic Relations Order (“DRO”) depending on the type of retirement plan. Most attorneys...

Retirement Benefits are often one of the largest assets in a marriage.  That makes them particularly important to consider in a divorce. We've previously covered the  5 Things you Should Include in a Divorce Agreement when Dividing Retirement Accounts , but we barely scratched the surface when it comes to the different options you might see in more complicated retirement plans.  It is always essential to review the Summary Plan of any retirement account to ensure that you (or your attorney) understand all the benefits and limitations that surround that plan, before trying to divide it.  When the plan is a defined benefit plan, one of the most important and often misunderstood details is how to divide the survivor benefit. A defined benefit plan, also typically referred to as a pension, is a plan that has a defined amount that will pay out (usually monthly) for the participant's lifetime (instead of a total amount that could run out, like an IRA).  This cre...

In a divorce, the court has the ability to order the division of retirement accounts, as a one-time non-taxable event, transferring a portion of the account from one spouse to the other. Whether or not all or part of a retirement account is divided depends on the rules of that jurisdiction and the facts of each case.  In this article we're not dealing with that determination but assuming there has been an agreement or order to divide an account.  Now what? How the account is divided, and whether a QDRO or some other specialized order is required, depends on the type of account.  Regardless of the type of account, however, there are five basic pieces of information that a Plan Administrator or QDRO drafter will need in order to properly divide the account.  When drafting a Divorce Agreement or proposed Judgment it is best practice to include these five elements: Identify the Plan Information Clearly  - It may seem obvious, but the Agreement or Judgment m...

Guest Post Introduction: Jessie L. Foster, CFP®, CDFA™, MBA is a Collaborative Law Financial Professional who works with clients and their attorneys to fully understand the financial complexities surrounding divorce. She offers comprehensive analysis of the short-term and long-term impacts of proposed divorce settlements that may impact clients and their families well beyond divorce. Ms. Foster serves as Chair of the Massachusetts Collaborative Law Council (MCLC) , Members Meeting Committee and is a member of The International Academy of Collaborative Professionals, the Divorce Center and The Massachusetts Council of Family Mediation. What does a Collaborative Law Financial Neutral Do? By Jessie L. Foster, CFP®, CDFA™, MBA Financial issues in divorce are complex and the decisions a couple makes as part of the divorce process may be some of the most important fiscal decisions they will make in their lifetime. On the Collaborative Divorce Team the financial professional is ...

In any divorce where the parties own assets of value, there will likely be some transfer of assets between the parties as part of the divorce settlement. Assets that could be at issue range from tangible personal property (i.e. the pots and pans) to bank, investment and retirement accounts. In addition, the most valuable asset in many marriages is the marital home (and/or other real property). Although generally tax implications in spousal transfers are minimal there are some issues to look out for. Issue #4. PROPERTY TRANSFERS: Because some assets are post-tax (such as bank accounts) and some assets are pre-tax (such as retirement accounts or capital gains), it is important to understand the tax implications in dividing them. If you trade a pre-tax asset for a post-tax asset of equal value without taking into account the resulting tax liability then you've lost the value of the tax liability. Therefore it is important to understand which assets have tax liability associated...