During your marriage, retirement savings may have been a big focus. From the time you were both in your 20’s, you may have had dreams of taking early retirement, selling the family home and traveling in an RV. You never thought you would have to worry about splitting that retirement money ahead of time due to divorce.
When it comes to negotiating the split of retirement accounts during a divorce, there are a few options available. In New York, the court favors equitable distribution of property and assets, meaning you and your ex should share and share alike. One way to accomplish this with 401(k) accounts and other retirement monies is through the use of a QDRO.
A QDRO is a court order directing the amount a retirement account holder owes you. It is not a good idea to just believe a former spouse will decide to give you the money owed down the road. Having a QDRO prepared as part of your divorce decree gives you peace of mind that disbursement occurs without a hitch.
When negotiating the terms of the split, utilizing a QDRO takes a tax penalty off the table. The form allows the non-account holder to take the appropriated share of the money and roll it into another existing retirement account or create a new one. Therefore, because there is no withdrawal per se, there is no penalty.
You do not want to wait for the account holder to reach retirement age in the event something happens along the way. A change in jobs, some poor investment choices and your portion of the money may dwindle. Utilizing a QDRO allows for your portion to split now versus later. This also allows the account holder to regain sole control of the rest of the money in the account and continue doing with it as he or she sees fit.
Both parties in divorce proceedings benefit when there is a process to streamline division of assets. Taking the guesswork out of dividing up a 401(k) by utilizing a QDRO is one aspect of a marital split that can lessen the burden and conflict.
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