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Distributing retirement accounts when divorcing

Property division during a divorce seems simple enough as separate property is not divisible while joint property is. However, the process is often complicated in reality when it comes to assessing things like stocks, business assets and retirement plans. Here are some considerations for retirement accounts when dissolving a marriage.

Spouses can split 401(k) funds without penalties or taxes during a divorce by using a Qualified Domestic Relations Order or a transfer incident if one has an individual retirement account. Making sure one uses the correct paperwork and files everything correctly may prevent penalties and scrutiny from the IRS. While moving funds as part of a settlement agreement does not come with taxes, individuals should consider any tax consequences before dividing retirement funds as some accounts are contributed to before taxes while others are not.

A former spouse might be listed as one's beneficiary because of a settlement requirement, but otherwise one will likely want to update estate planning documents regardless of what one does with his or her share of retirement funds after a divorce. One might need to update a will or create a trust for those who will receive an inheritance.

There could be many property matters spouses need to resolve when settling a high-asset divorce, and several options might be available for dividing property. For example, a spouse could keep a retirement fund in exchange for his or her portion of something else. Couples may have more freedom to reach solutions that could satisfy both parties when using methods like negotiation or mediation for a divorce.

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