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Dividing retirement accounts in divorce

When a young couple gets divorced, the challenges for that couple are different than the challenges facing an older couple. Some of this can have to do with the length of the marriage and the degree to which the parties are tied up financially and family-wise, but it can also just have to do with being an older person starting out again by oneself.

Because—for most people—adequately planning for retirement takes years and discipline in putting away enough money, the prospect of divorce can be scary for older folks. And yet more and more older couples are doing it. So, what can older couples do to plan for the financial changes of divorce?

Much could be said on this topic, but one thing all divorcing couples need to do, but especially older divorcing couples, is to get a clear understanding of their financial situation. This includes assets, liabilities, income, expenditures and an overall budget. For older couples, retirement accounts are especially important to look at.

It is not always easy to determine how retirement plans are divided in divorce. Generally speaking, funds that are added to a retirement account during marriage are treated as marital property, and are subject to division in divorce. When it comes to 401K plans and many other pension plans, a Qualified Domestic Relations Order is required. A QDRO, as they are called, is a document instructing a plan administrator about how to pay a non-employee spouse’s share of the benefits according to a court order.

It is important, when putting such documentation together, to work with an experienced attorney who knows how the process works and how to avoid mistakes. Doing so will save one time, money and headache. 

Source: Fox Business, “Divorcing Baby Boomers: How to Get a Financial Grip,” Donna Fuscaldo, April 30, 2014. 

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