Divorce can be an emotional challenge for many. The thought of starting a new routine may be difficult to handle as well as thinking about financial burdens that may come out of the divorce process. It is important to stay positive as starting a new chapter in life can be challenging but also rewarding. In addition, we advise anyone going through a divorce to have an experienced divorce attorney on their side because their attorney can navigate the complex divorce process and help to protect their client’s finances.
One financial topic that will need to be covered during a divorce is that of retirement funds. This topic can be of great concern since retirement assets are valuable and important to many. To help you understand what may happen to your retirement funds during a divorce, we outlined a few of the most common retirement accounts and processes below:
Types of Retirement Plans
One step of a divorce is identifying what type of retirement plan(s) you and/or your spouse have. There are two main types: defined contribution plans, such as 401(k)s, and defined benefit retirement plans, such as traditional pension plans. If unsure of the type of retirement plan, one can contact their plan’s administrator or their company’s HR department.
Dividing Retirement Assets
Retirement assets that one or both spouses earn during marriage are considered marital property and are subject to equitable division in a Pennsylvania divorce. Such assets include retirement savings in 401(k) and IRA accounts and other defined contribution plans. They also include retirement assets that are vested in defined benefit plans, such as traditional pension plans.
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The Qualified Domestic Relations Order (QDRO) Process
In some divorce cases, it may be necessary to transfer retirement assets from one spouse to another. In order to do this, a QDRO may be necessary to direct the administrator of the retirement accounts (e.g., the company where the spouse works) to transfer a specific amount of the retirement funds to the other spouse. The important thing to note with a QDRO is that there is no tax consequence to either spouse due to this transaction unless funds are liquidated as part of the transaction. A QDRO does avoid the 10% early withdraw penalty in such a transaction.
Hiring an experienced divorce attorney can increase your chances of protecting your money during a divorce and can help you navigate all the items involved in a divorce – including the important topic of retirement funds.
If you have questions about this information, or if you would like more information about how our experienced attorneys at Wilder Mahood McKinley & Oglesby can help you in your divorce case, contact us online or call us at 412-261-4040.
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