Retirement Accounts in Divorce

 Posted on March 25, 2016 in QDROs, Pensions and 401(k)s

A prominent financial advisor suggests that spouses who receive the marital residence following a high-asset divorce sell it, downsize, and use the extra cash to make catch-up contributions to their retirement accounts.

Such action is particularly appropriate if the divorcee is over 50, because persons of this age have less time to make up lost wealth. If a person saves $500 per month in housing costs, invests it, and realizes a 5 percent return, that extra cash will be $77,000 in ten years. Professionals suggest that the funds go into a 401(k) or other employer-sponsored retirement account; in most cases, account holders can put up to $24,000 a year into their 401(k)s.

After divorce, household income drops by an average of 23 percent for men and over 40 percent for women.

Retirement Accounts

In many high net worth divorces, it is important to protect retirement accounts to the greatest extent possible, especially if the account-holder is on a second marriage and the account has already been divided once.

Even if only one spouse made financial contributions, these funds are community property and must be divided in a just and right manner; in most cases, that means a 50-50 split. The supporting paperwork, and specifically the Qualified Domestic Relations Order (QDRO, pronounced quad-ro), must be carefully prepared to avoid adverse tax consequences and delays in account division. Most companies have their own forms for this purpose.

Once the account is divided, the non-owner spouse has a number of options:

• Cash Equivalent: Although normally not advisable, this option may be appropriate in some circumstances, especially given the restrictive alimony laws in Texas.
• Retirement Share: The spouse can keep the money in the existing account and receive a share of payments when funds are disbursed later; in most cases, the spouse cannot make separate contributions.
• Rollover: This transition is normally seamless when all pertinent information is included in the QDRO.

Special rules often apply to military and other government-sponsored retirement accounts. Additionally, there may be issues regarding commingled funds, if the contributions came from a source other than payroll deductions.

Retirement security is an important consideration in divorce cases. For a confidential consultation with an aggressive Cedar Park high asset divorce attorney, contact our office. Call Powers Kerr & Rashidi, PLLC at 512.610.6199 today.  Our firm provides specialized legal representation in family law cases in Central Texas.

Source:

http://time.com/money/4229581/divorce-after-50/