The process of divorce is often stressful, but when it comes to the equitable distribution of a couple’s retirement nest egg, a whole new level of stress can develop. If these funds are not split properly, a myriad of tax problems and other legal issues can occur. Consulting with an experienced New Jersey divorce lawyer like those at Lyons & Associates, P.C. can help ensure that your rights and your financial resources are protected.
IRAs, 401ks, and pension plans are often the largest financial assets in a divorcing couple’s portfolio. Making sure they are divided fairly and properly will avoid taxation issues and early withdraw penalties. An IRA account could mistakenly be subjected to these penalties if not properly transferred as an “incident to divorce.” They must also be approved by the sending and receiving IRA custodians, the judge, and state court. Failure to meet these provisions can result in substantial tax penalties if your spouse receives their benefit as normal income.
Filling Out a Qualified Domestic Relations Order
Qualified plans require a Qualified Domestic Relations Order (QDRO), which is a legal document that allows the retirement plan to pay benefits to an ex-spouse. The ex-spouse can then add these funds to an IRA or to their own qualified plan. The transaction is tax free, but only if it is designated as a QDRO and reported to the judge and the IRS. Failure to designate the transaction as QDRO will leave you liable for taxes and penalties.
It is imperative that each spouse in a divorce updates their beneficiaries when they roll over or invest the retirement funds. Qualified plans generally follow the same rules of awarding retirement benefits to an ex-spouse if the beneficiary designation was never changed. Even if the will of a deceased ex-spouse states a different beneficiary, proceeds from a qualified plan will be awarded to the designated beneficiary on the retirement plan. If the ex-spouse had given up their rights to the retirement benefits in the divorce settlement, then it is important that this is clearly stated on beneficiary documents.
When retirement nest eggs need to be split up between a divorcing couple, it is advisable to consult with an experienced and reputable divorce lawyer. At Lyons & Associates, P.C., we are dedicated to helping our clients reach amicable settlements as efficiently and stress free as possible. We understand that your retirement is a vital part of your financial security that needs to be protected during your divorce proceedings.
Woodbridge Divorce Lawyers at Lyons & Associates, P.C. Provide Clients with Experience and Reliability
If you or someone you know is contemplating divorce, contact the Woodbridge divorce lawyers at Lyons & Associates, P.C. Our team of experienced and reliable attorneys is committed to ensuring your legal rights are protected. Call us at 908-575-9777, or contact us online to schedule a consultation today. Our offices are located in Somerville, New Jersey and we serve clients throughout the state.