The emotional toll of dissolving a marriage in Massachusetts can be difficult to manage. However, the financial issues that come with getting a divorce can also be challenging to address. When two people get divorced, retirement plan assets may need to be divided, which can pose tax-related problems if not executed properly.
If one person is transferring funds from his or her IRA to the other spouse’s IRA, this has to be done properly to prevent penalties from being assessed. In addition, certain plans such as a 401(k) require the use of a qualified domestic relations order, or QDRO, for dividing the assets. Other qualified plans requiring the use of a QDRO include a pension plan and defined benefit plan.
When dealing with qualified plans, it is also imperative that a person change his or her beneficiaries after the transfer of assets. With a 401(k), if a person fails to change the beneficiary designation, the assets could end up going to his or her ex-spouse no matter what is spelled out in the will. On the contrary, state laws do not govern IRAs, so these plans do not immediately grant the spouse beneficiary rights.
Knowing what choices to make during a divorce in Massachusetts can be stressful when it comes dividing property and assets. However, a working understanding of the law may help people to make informed decisions that will benefit them in the long run. If two divorcing individuals are able to see eye to eye in the area of asset division, they may be able to avoid further court intrusion.
Source: Forbes, “Divorcing? How to Split Up Retirement Nest Eggs“, Duncan Rolph, Nov. 23, 2016