Splitting a 401(k) during divorce doesn’t have to be difficult

Sometimes marriages in Massachusetts simply do not work out. In these cases, feeling emotionally unstable is natural, and one may also be concerned about the stability of his or her future financial standing. This is particularly true for those getting a divorce near retirement age.

When it comes to IRAs, it is possible the divorcing couple could have two, three or even more of the retirement accounts. In this situation, a couple would calculate the total dollar value of all of their IRAs and then divide this value by two. Then, they can just divide one IRA in a manner that allows both parties to get their fair share of the value of all the IRAs they own.

An IRA may be split via a divorce decree. A legal document called a QDRO, or qualified domestic relations order, is necessary to divide one. This is the benefit of an IRA: It can be much easier to divide compared with an employer-sponsored 401(k). With their divided IRA money, both divorcing parties can simply re-invest the money how they see fit without being worried about paying capital gains taxes, as IRAs are tax deferred.

Splitting assets can be one of the most high-conflict aspects of a divorce in Massachusetts, particularly during a marital split-up involving a large number of assets or high-value assets. However, if both parties can see eye to eye on how to divide their property, including their retirement funds, they can easily complete this process through informal negotiations or via divorce mediation, for example. If they cannot reach an agreement on asset division, they will have to depend on a judge to decide for them how to divide their property. Unfortunately, the judge’s order may not necessarily align with the divorcing parties’ wishes.

Source: thestreet.com, “How Divorce Affects Social Security and Retirement Accounts,” Robert Powell, Dec. 15, 2017