During your divorce, one of the things you may need to divide is your retirement account. You may have one yourself while your spouse has another, or one of you may have one on your own.
In Pennsylvania, the law requires you to split your assets equitably. Since there is no requirement to be equal about the division of your assets, it is important for you to take action to protect your interests in your retirement funds.
How are retirement funds split during divorce?
It depends. If you want to, you may decide to keep your separate retirement accounts and move on without touching them. You might ask for a share of your spouse’s retirement if you don’t have one of your own. You might also decide to take a different asset instead of funds from a retirement account if you feel that doing so is right for you at the time.
If you want to divide a qualified plan, such as a 401(k), you will likely need to get a Qualified Domestic Relations Order. This, also known as a QDRO, divides your retirement assets legally.
Do you have to pay taxes on your retirement account if you divide it?
So long as you file your paperwork correctly with the court, you can usually avoid paying taxes on your split retirement account. The QDRO will help split any retirement accounts other than IRAs, so that those assets may be transferred to qualified individuals without taxes. However, if you fail to file a QDRO, you could be taxed for failing to report the transfer correctly to the appropriate parties.
What can you do to protect your retirement?
If you were planning to rely on your spouse’s retirement to retire later in life yourself, it’s smart to learn more about a QDRO and how it could help.
If you have a retirement account that you want to protect, you should look into other property division options that may help you preserve it, such as giving up a larger property or buying out your spouse. There may be several options depending on your specific situation.