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Understanding how retirement accounts will get split in divorce

Most people already know that unless they have a prenuptial agreement in place, divorce means their assets will get split with their spouse. The same is true of debts acquired during the marriage. Florida is an equitable distribution state, which means that all marital assets will get divided between you and your spouse by the courts. Marital assets are any assets accumulated during the marriage.

Just because the retirement account is only in one person's name doesn't mean that he or she can simply retain all the funds in the account. The courts will look at when deposits were made. Typically, amounts accrued during your marriage are subject to division. Even if only one spouse worked, both spouses will likely receive a portion of the retirement account funds accrued during the marriage.

Planning for post-divorce retirement

Your retirement accounts may have been enough to support a single household through retirement, but they likely aren't going to be enough for two separate households. For many people, especially those that are older at the time of divorce, the process can result in a substantial decrease in assets. That, in turn, can impact your ability to retire, the timing of your retirement or even your quality of life.

Careful planning, compromising on the location and price of your home or even choosing something unusual, like living in a mother-in-law's apartment on the property of one of your children could help. So could deciding to work part-time or putting substantially more funds away for retirement in the years following your divorce.

If done properly, you can split the account without penalties

One of the biggest concerns for people thinking about splitting retirement accounts is the potential for penalties, fees, taxes and fines associated with early withdrawal of retirement funds. The good news here is that it is possible to split standard retirement accounts, such as 401Ks and Roth IRAs, without incurring financial penalties.

In order to avoid these penalties, typically the division process must occur after the divorce gets finalized by the courts. The court order can then get used to initiate the processing of splitting accounts. IRAs get divided using a process called "transfer incident to divorce." 401Ks can get divided with a "Qualified Domestic Relations Order" (QDRO). Typically, the courts will refer to both of these options as QDROs, but they are distinct from one another.

So long as you take care to follow procedure and file the correct forms, it is possible to split your accounts after a divorce without any fees or penalties. From there, you focus should be on rebuilding your retirement funds throughout the remainder of your working years.

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