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How to divide retirement assets in divorce

Divorcing when you are young is fraught with complications such as children's schedules, student loans and child support. While these decisions may be difficult to navigate, divorcing when you are older has its own challenges. Retirement accounts, social security and pension plans will all need to be divided, something that can be impossible to determine on your own. Forbes states that, with 25 percent of all divorces now occurring in couples who are over age 50, this issue is becoming more and more prominent. There are several things you need to know if you are nearing retirement and divorce at the same time.

Understanding a QDRO

When it comes to the regulations regarding the division of property, some accounts will be subject to individual state laws. Military pensions and government retirement plans will also be divided according to their own rules, but some plans, like a SEP or an IRA, are simpler. To divide many 401(k) or pension plans, a court will need to develop a Qualified Domestic Relations Order, or QDRO. This plan makes it possible for the retirement account to be divided and gives direction to the plan administrator concerning how to deposit the funds separately without incurring penalties.

How ownership is determined

If you and your spouse married later in life, it is likely that you had each already made contributions to your own accounts. When you divorce, the amount you accrued will not be considered joint marital property, but anything you added after you were married will.

Best ways to prevent tax penalties

Bankrate.com instructs divorcing couples to be aware that simple mistakes can lead to tax penalties and a loss of funds - sometimes up to 50 percent. For this reason, it is important to get an experienced attorney who knows how to set up and handle QDROs. Since these accounts are so complicated and mistakes can be costly, many attorneys hire an expert to assist in the preparation. By finding the right attorney, you can not only achieve a higher settlement, but reduce the risk of loss due to penalties.

If you need to develop a QDRO, be sure to organize and submit the plan before your divorce is finalized. Once the terms of the settlement are determined, you will not be able to go back and make changes. It is also important to be sure you understand what will happen once the papers are signed. Some people mistakenly think they will receive a lump sum from the retirement account and can use that to pay for court and attorney fees, but many accounts distribute payments slowly or will not begin doing so for years. Contact an experienced attorney to help you understand these issues and plan for your retirement after divorce.

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