Dividing a 401(k) in a divorce

People in Florida who are deciding to divorce may be concerned about how their retirement funds will be distributed. In many cases, 401(k)s and similar funds are some of the largest assets held by a couple, so it is important to handle the distribution of these funds properly. If they are not divided correctly, both divorcing spouses could face costly taxes and other penalties.

According to a survey of divorce lawyers, 62 percent of divorcing couples fight over the future of their retirement funds. Given the major financial effects of divorce, it is not surprising that all three of the most common issues related to assets. Alimony and business interests rounded out the top three most contentious issues. Even when the couple and their lawyers have reached an agreement on a fair property division settlement, the process that follows can be critical in making sure that it proceeds successfully. The only way to legally divide a 401(k) or similar workplace retirement fund is through the use of a qualified domestic relations order. A QDRO is a court order; it is not included in the divorce decree even though it reflects the same content.

Instead of simply presenting the divorce decree to a plan administrator, an attorney must secure a QDRO from the court and work to ensure that the funds transfer proceeds smoothly. Each relevant account must be the subject of a separate QDRO. In some cases, people may transfer the divided funds to a rollover IRA; this must be specified explicitly.

There are a number of specific concerns to keep in mind when dealing with dividing retirement funds in divorce, including ensuring that the QDRO correctly reflects the divorce settlement. A family law attorney may work with a divorcing spouse to protect key assets and negotiate a fair agreement.

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