When a couple in New Port Richey has been married for decades, you would think their union will last forever. This is not always the case, however, and more older couples in their fifties, sixties and seventies are seeking a divorce these days than they had in years past.
In what is known as a “grey divorce” the divorce issues that are important to these older couples may look very different from those their younger counterparts face. For example, a younger couple may be concerned about child custody and child support, while an older couple whose children are grown may be more concerned about property division, specifically with regards to their retirement accounts.
Dividing a 401(k) or pension plan
If a couple is dividing a 401(k) or a pension, they must do so correctly to avoid unintended tax consequences. With these types of accounts, transfers need to be made via a qualified domestic relations order (QDRO). This is a separate court order from your divorce decree. It recognizes the divorcing spouse’s right to some or all of the 401(k) or pension plan.
Couples splitting a 401(k) or pension have two options for doing so with a QDRO. One way is to award a separate interest in the account balance. Another way permits a divorcing spouse to share in the payment of benefits on their ex’s account. Once an agreement regarding the split of retirement benefits is reached, the holder of the 401(k) or pension plan will give the QDRO to the plan administrator.
Dividing an IRA
A QDRO is not needed to divide an IRA. To divide the funds in an IRA following a divorce, the terms of the division must be included in the divorce decree. To avoid taxes and penalties, the divorce decree should specifically state what percentage or dollar amount is being transferred, and this transfer should be a direct trustee-to-trustee transfer in which the specified funds in one spouse’s IRA will go directly to the other spouse’s IRA.
If the spouse receiving the transfer tries to take cash out in the transfer, it will be taxed and depending on how old the spouse is, there could be an early withdrawal penalty too. In addition, if the owner of the IRA withdraws funds from the account to give to their ex, this distribution may be taxed and depending on how old the spouse is, there may be an early withdrawal penalty as well.
Learn more about property division in a divorce
While many couples may want to seek counseling or take other steps to try to save their marriage, sometimes as the years go by, they simply find that divorce is the right option for them. Floridians interested in learning more about property division in a divorce are encouraged to visit our firm’s website for more information.