Common Issues of Retirement Accounts in Divorce Division

 Posted on January 15, 2016 in QDROs, Pensions and 401(k)s

In many high net worth divorces, assets have an emotional value that is equal to, or even greater than, the monetary value. For example, a house is not just a residence; it is the place where the children grew up. The same principle applies to many personal property items, like grandfather clocks and sets of dishes.

Retirement accounts often fall into this category as well. In addition to their significant dollar value (a 410k, IRA, or other long-term savings account is often the largest asset in a divorce), the account represents years or even decades of financial sacrifice and the promise of long-term security. So, it is little wonder that there are many issues stemming from retirement accounts in a high-asset divorce.

Pre-Division

As a brief primer, most retirement accounts are divided 50-50 between the spouses, based on the length of the marriage and the amount of money accumulated during that relationship, even if the non-owner spouse made no financial contributions.

Distribution issues are particularly acute in a second or subsequent marriage, because in many cases, a husband or wife's retirement account has already been divided once, and the owning spouse is more determined than ever to hold onto the remainder.

A premarital agreement is often a good idea in these situations, because the spouses can agree to a percentage division well in advance of any marital discord. Bear in mind that a non-owner spouse often does not have the same emotional attachment to an asset, and therefore an unequal division is not at all distasteful. In the alternative, a future spouse may be willing to accept an offset, such as more cash alimony in exchange for a decreased share of a retirement account.

Post Division

Every situation is different, but as a rule of thumb, a non-owner spouse has a number of options for his or her share of a retirement account:

• Lump Sum: The non-owner spouse takes the cash value of the designated share; if the high-asset divorce decree is carefully drafted, there will probably be no penalty for early withdrawal.
• Do Not Touch: The easiest outcome is to do nothing and begin collecting a share of payments when the owner spouse retires. Typically, in this instance, the non-owner spouse cannot make separate financial contributions.
• Rollover: Most non-owner spouses elect to transfer a share of the account into a new IRA or other long-term savings vehicle that offers total management control.

Retirement account division does not have to be a complex matter. For prompt assistance in this area, contact an aggressive Cedar Park complex divorce attorney. Call Powers and Kerr, PLLC at 512.610.6199 today.

Source:

http://www.wsj.com/articles/SB10001424052748703672104574654723099767530