Saving retirement during a divorce
Any person in Knoxville who has experienced a divorce knows that the losses can affect every part of life. Financially, many people find themselves struggling after a divorce and even facing reduced savings. Retirement funds are frequently split between spouses during the property division determinations in a divorce. However, there are other financial losses sometimes associated with the splitting of retirement accounts that can be avoided with the right steps.
What happens after funds are split
Because retirement accounts are held in one person’s name only, when the funds are to be split whether in half or some other percentage, money is disbursed from the account to the appropriate persons. It is at this point that the people receiving monies must make decisions on how to proceed.
If a spouse makes the decision to simply keep the money, perhaps in a regular banking account, additional penalties and taxes could be assessed on the funds. A Forbes story indicates that is what happened to a California woman after she chose not to reinvest the money from her prior husband’s 401k. This happens because retirement funds are not to be accessed until the account holder reaches the stipulated ages and meets all criteria. For this reason, reinvesting retirement funds is highly important in order to avoid a large part of the investment being paid out in taxes and penalties.
Process documentation can help
Even when retirement funds are properly received and reinvested, there can be a risk that taxes and penalties will be assessed. This can happen if for any reason tax agencies or other entities are not clear that the transactions are pursuant to a divorce decree. The Tampa Bay Times and Fox Business both indicate that the use of a relatively simple legal document, the Qualified Domestic Relations Order, can help with this.
The QDRO essentially calls out clearly the fact that specific transactions are being processed in order to fulfill the stipulations of a divorce settlement. This can be thought of as an easy insurance policy that prevents unnecessary taxes or penalties and associated hassle in fighting them.
The right attorney can help
Contacting an attorney when facing a divorce can help to make some financial processes easier and prevent losses that are not needed. With more and more people in the U.S. getting divorced closer to retirement ages according to the National Center for Family and Marriage Research, the need to save retirement assets is of great importance.