The issues that cause Minnesota couples to end their marriage often make negotiating the terms of property division difficult. To avoid costly financial mistakes, people must make a conscious effort to examine closely the details of the settlement. The property division phase includes splitting retirement accounts, and mistakes could lead to unexpected tax bills.
Any retirement savings, including employer-sponsored plans and individual accounts, must have specific paperwork completed before they can be divided. The divorce decree must clearly state who gets how much from each account. A document called a qualified domestic relations order officially authorizes distributions from a 401(k), 403(b) or pension according to the terms of a divorce. This order allows the parties to take their shares and roll them over into individual retirement accounts without incurring a taxable distribution.
Due to the cost of divorces, which averaged $15,000 in 2016, people sometimes want to access their retirement funds to pay for legal fees. Withdrawing the money for that purpose, however, would impose taxes and early-withdrawal penalties on the divorcing people unless they had reached the retirement ages specified within plan documents.
Someone embarking on the divorce process could gain insights about taxes, rights to certain assets and parental rights from an attorney. Even if a divorce is uncontested, an attorney could prepare the necessary court documents and help the client make informed decisions during negotiations with the former partner. If a dispute does erupt, an attorney might act to shield the client from emotional stress by managing communications with the other party. This effort might resolve disagreements about property division, child custody and child support.