Divorce and dividing retirement accounts

On Behalf of | Apr 6, 2017 | Property Division

Minnesota couples who are getting a divorce might need a document known as a Qualified Domestic Relations Order if they are dividing a retirement account. A retirement account is generally divided equitably, but this may not be 50/50. A judge may decide that a different type of division is more equitable.

Division of retirement accounts and other assets will proceed differently depending on individual circumstances. If the couple has a prenuptial agreement, it will have the terms of the property division spelled out, although either individual might challenge the prenup. If the couple decides to try to avoid litigation and negotiate the terms of division, the outcome might be different than if a judge makes those decisions. Couples who are negotiating might keep in mind that the higher-earning spouse may be able to rebuild an account more quickly, so this could be one reason for the other to take a slightly larger share.

From a split of $1.1 million, an individual might set aside $100,000 to cover costs and still be left with $1 million that can be rolled into another account. An individual who takes an entire retirement account in lieu of a house that has been paid off may not be getting the better deal even if the retirement account is worth more. For example, if the individual wants to take distributions from the 401(k) before they are 59 1/2, it is necessary to pay a penalty and tax.

This division and the QDRO are complex and can be costly in terms of fees and taxes. For this reason, an attorney might recommend a certified divorce financial analyst to assist in understanding the costs associated with the QDRO and the best approach to dividing the retirement account.