You and your spouse may have worked hard for many years to have the pensions you wanted in retirement. You might have had a solid plan for retiring early or becoming wealthy enough to move to a particular location once you retired.
If there have been major changes in your life and a divorce is now looking like it’s going to happen, you need to look at your retirement plans and think about how you can protect them.
What happens to retirement accounts during a divorce?
What happens to your retirement accounts will depend on if you had a pre- or post-marital agreement as well as where you live. Missouri is an equitable distribution state, which means that you will need to divide your marital assets equitably.
Your retirement accounts, including pensions, 401Ks and others, are subject to division if you earned them during the marriage. For assets earned prior to marriage, most may be protected, but the growth of interest may not be.
To divide your retirement accounts, you will need to get a Qualified Domestic Relations Order, or QDRO. This is a judgment that orders a retirement plan to pay out to your spouse. For example, the QDRO may tell the retirement plan to pay out 50% to your spouse.
The money granted to your spouse could then be rolled into a new account for their own retirement.
It’s beneficial to use a QDRO
It is helpful to get a QDRO to divide your retirement assets, because it makes the transfer of assets simpler. A QDRO also helps prevent an early withdrawal penalty by the IRS, which is normally 10% if funds are transferred before the age of 59 ½. As long as the recipient puts the funds into another retirement account, they won’t be taxed on the money, either.
Dividing your retirement is complicated
It is complicated to divide retirement accounts, so it’s helpful if you get to know more about the rules that apply to 401Ks or other pensions before you transfer any money. Knowing how much your accounts are worth and what exactly has to be split will be the first step and can help you make decisions during this emotional time in your life.