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Negotiating around retirement accounts during divorce

On Behalf of | Jul 31, 2023 | Divorce

When a marriage ends, the spouses will need to negotiate their divorce settlement. This is a division of their marital assets and debts. And as couples in Indiana get closer to retirement age, retirement accounts become increasingly important during divorce negotiations.

Division of assets in an equitable division state

Indiana is an equitable division state, which means that the division of marital assets and debts is made fairly, but not necessarily equally. To reach a division fair to both spouses, each spouse’s contribution to the marriage is considered. Contributions can be financial, but other contributions are considered as well.

Options for dealing with retirement accounts during the divorce

There are several ways that spouses might deal with their retirement accounts during a divorce. These include:

  • Keeping the accounts intact if they are comparable in value
  • Negotiating for other assets or a cash payment to keep one spouse’s retirement accounts intact, if the other spouse has no retirement accounts or one with much lower value
  • Dividing the retirement accounts as part of the divorce settlement

Following the rules and avoiding tax penalties

Dividing retirement accounts can be complicated and might lead to tax penalties if not done correctly. Accounts such as 401(k)s need a QDRO, or qualified domestic relations order, issued so that a spouse might receive funds from the other spouse’s account during the divorce. Rolling those funds into a new IRA or 401(k) can also help the receiving spouse avoid tax penalties. Other types of pensions and retirement accounts also have rules that need to be followed to facilitate a division.

Making careful decisions regarding retirement accounts during the divorce is important to protect your financial stability during retirement. This might involve consulting with financial experts who can help you understand the process.