The challenge of apportioning retirement assets in a divorce

Any divorce is likely to encounter difficult financial moments, but dividing retirement assets between spouses brings the complications to a higher level. A fair division of assets includes questions on taxes and the different rules that apply to the range of pensions and retirement savings accounts.

Plus, retirement assets often involve a large sum of money.

A contentious item

According to an article by CNBC, and referencing a 2016 survey of matrimonial lawyers, figuring out how to divide retirement accounts and pensions is among the top three most fought over areas in a divorce, along with alimony and division of business interests. The type of retirement account determines the actual nuts and bolts of the process. For workplace retirement plans, whether it is a pension or a savings account, the legal mechanism for moving money is a qualified domestic relations order. Though based on the divorce decree, the  QDRO is a separate action. In many cases, an attorney must contact the administrator of the plan and follow the required steps to transfer the money. For individual retirement accounts the process is a little simpler. The divorce decree spells out the division percentages and then an agent follows the steps for a rollover IRA.

The tax implications

All financial decisions in a divorce affect taxes in some way, and this is even more true for retirement assets. According to CNBC, a $100,000 value in a checking account is much different than $100,000 in a retirement account, because the retirement account incurs taxes.  In the case of a rollover IRA before a person has reached retirement age, the 10% early withdrawal penalty does not apply as long as an agent or attorney moved the money legally and in accordance with tax laws.