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Dividing retirement assets in a divorce

On Behalf of | Oct 11, 2022 | Divorce, Family Law |

Divvying up the retirement accounts is an inevitable aspect of any divorce. The division of these accounts works similarly to the way other forms of property are split. Throughout the process of splitting up your retirement assets in Minnesota, the best thing you can do for yourself is stay aligned with what you want out of your finances.

Taxation is where the trouble comes in

The complications come in when you start dealing with the legal aspects of retirement assets in a divorce. It’s a process that may become thornier and harder to understand the further you delve into it. Dividing these types of assets isn’t always as simple as it might seem on the surface, and the tax laws surrounding the process are particularly easy to get lost in.

It’s not as if you can just cut your assets in half like a physical object. Many complex considerations must be made to determine the value of each individual asset when figuring out how to fairly distribute them between the two parties.

With plans like 401(k)s and pensions, a qualified domestic relations order or QDRO is used to make the split. For both Roth and traditional IRAs, a transfer incident to divorce is used.

You might find it helpful to review the difference between cash and assets to make retirement asset division in a divorce easier to manage. The distinction is in how the two are taxed.

The difference between cash and assets

The way tax law works differs between assets and cash, so you’ll want to make sure you’re looking at the correct information that applies to what you have. It’s important to understand how much you’re going to be taxed when withdrawing funds from a traditional IRA, for instance.

If you find out what the tax implications of retirement account division are ahead of time, it may end up helping to save money. You will sometimes be hit with additional taxes if you make an early withdrawal.

There is a multitude of retirement account types and each has its own unique ramifications in their taxation. In order to properly negotiate the way the property is divided, a confluence of factors including the complicated tax law must be fully considered.