The equitable division of property is one of the main concerns in almost every divorce. When it comes to retirement benefits, this can seem a daunting task.
The courts must decide when and how to fairly allocate a potential combination of pensions, Social Security benefits, annuities and other retirement vehicles.
The IRS clarifies the importance of two documents related to retirement benefits and divorce. The first is the Qualified Domestic Relations Order. The ex-spouse in connection with the court must file this document with the administrator of his or her former partner’s retirement plan. This allows the plan to pay some or all of the assets in the retirement plan to the ex-spouse, as outlined in the court order.
A second document, perhaps not quite as critical as the QDRO, is the beneficiary form. Failure to update the form after a divorce could result in the money in a person’s retirement account going to the wrong place in the case of death. The person should contact the plan administrator or his or her employer, make the changes and resubmit the form. In some cases, the person might need to attach the divorce decree.
An article in Kiplinger outlines a few possible smart moves for divorcees when it comes to an amicable agreement of retirement allocations. A trustee-to-trustee transfer moves assets from a 401(k) from one spouse to another (or ex-spouse) without incurring tax penalties. Working closely with an attorney, a person should sign the QDRO prior to the divorce decree and attach the separation agreement. A methodical and careful approach works best when considering the equitable division of retirement benefits.