Retirement Accounts in Divorce

Minnesota Divorce Lawyers Protecting Your Retirement

If you are over the age of 50 and going through a divorce, you may be wondering what will happen to your retirement accounts. After all, they are a valuable asset that you and your spouse may have worked hard to acquire.

The good news is that there are a number of options available to you when it comes to dividing your retirement accounts in a divorce. The best option for you will depend on your individual circumstances and needs. Understanding the basics can help you make informed decisions about your financial future.

What Are Retirement Accounts?

Retirement accounts are savings vehicles designed to help individuals accumulate funds for retirement. There are several types of retirement accounts, including:

• 401(k) plans
• Individual Retirement Accounts (IRAs)
• Pension plans
• Deferred Compensation plans
• Profit-Sharing plans

These accounts may be subject to different rules and regulations depending on the type of account and the employer sponsoring the account.

How Retirement Accounts Are Divided in a Divorce

In Minnesota, retirement accounts are considered marital property and are subject to equitable distribution. This means that if you and your spouse have retirement accounts, they will need to be divided fairly between you and your partner as part of the divorce settlement. This takes into account all relevant factors, such as:

• The length of the marriage
• Each spouse’s income and earning potential
• Each spouse’s contributions to the acquisition and maintenance of the account
• The needs of any minor children

Here are some important things to keep in mind when it comes to dividing retirement accounts in divorce:

• Retirement accounts may be divided using a Qualified Domestic Relations Order (QDRO). A QDRO is a court order that allows retirement plan administrators to divide retirement benefits between divorcing spouses.
• If a QDRO is not used, the division of retirement accounts may trigger taxes and penalties for early withdrawal.
• The amount of retirement benefits that each spouse is entitled to may be determined by state law or by the terms of the divorce settlement agreement.
• The division of retirement accounts may impact spousal support payments.
• The timing of retirement account division is important.
• Retirement accounts may be subject to inflation.
• Retirement accounts may be subject to market volatility.
• Retirement account division can impact estate planning.
• Retirement account division can impact retirement planning.

Your Options for Dividing Your Retirement Accounts

There are a number of different ways to divide your retirement accounts in a divorce. Some of the most common options include:

• Selling the account and dividing the proceeds. This is the most straightforward option, but it may not be ideal if you are both emotionally attached to the account.
• One spouse buying out the other spouse’s interest in the account. This can be a good option if one spouse is more financially able to afford the account than the other.
• Continuing to own the account together and sharing use of it. This can be a good option if you are both able to get along and cooperate. However, it is important to have a written agreement that sets out the terms of your shared ownership, such as how often each spouse will be able to withdraw money from the account and how the costs of maintenance and upkeep will be paid.
• Leaving the account to one spouse in the divorce settlement. This is an option if one spouse is more emotionally attached to the account than the other. However, it is important to consider the tax implications of this option, as you may have to pay income taxes on the value of the account if you receive it in a divorce settlement.

Getting Help with Dividing Your Retirement Accounts

There can be considerable complexity when dealing with retirement accounts in a divorce. If you are unsure of how to divide your retirement accounts in a divorce, you may consider speaking with an attorney. An experienced attorney can help you understand your legal options and can negotiate on your behalf to get the best possible outcome for you.

Here are some additional tips for dividing your retirement accounts in a divorce:

• Get an appraisal of the account. This will help you determine its fair market value.
• Be realistic about your needs and wants. It is important to be realistic about what you can afford and what you want out of the divorce.
• Be prepared to compromise. In most cases, both spouses will have to give up something in order to reach an agreement.
• Get everything in writing. Once you have reached an agreement, it is important to get it in writing. This will help to avoid any disputes down the road.

Qualified Domestic Relations Order

A qualified domestic relations order (QDRO) is a court order that divides retirement benefits between spouses in a divorce. One significant benefit is that it helps ensure that the retirement benefits are not subject to taxation.

QDROs are complex, so it is important to have an experienced QDRO attorney draft them. This can make certain that you will both receive what you expect.

Here are some important things to keep in mind about QDROs:

• QDROs must be specific: QDROs must be specific about the division of retirement accounts, including the percentage or dollar amount to be transferred and the timing of the transfer. Make sure your QDRO is carefully drafted to ensure that it accurately reflects your intentions.
• QDROs must be approved by the plan administrator: QDROs must be approved by the plan administrator before they can take effect. Make sure you understand the plan administrator’s requirements and timeline for approval.
• QDROs may have fees: QDROs may have fees associated with them, including fees for drafting the order and fees for plan administration. Make sure you understand any fees associated with your QDRO and how they will be paid.

• QDROs may have tax implications: While QDROs allow retirement accounts to be divided without triggering tax penalties for early withdrawal, there may still be tax implications associated with the division of retirement accounts. Make sure you work with a financial professional to understand the tax implications of your QDRO and how to minimize your tax liability.

Retirement Accounts and the Older Divorced Couple

Divorce can be a difficult time for anyone but can be especially challenging for older couples who are nearing retirement. This is because retirement accounts are often a major source of income for older couples and dividing them can be complicated and time-consuming.

There are a number of factors that older couples should consider when dividing their retirement accounts in a divorce. These factors include:

• The age of the couple
• The health of the couple
• The financial needs of the couple
• The tax implications of dividing the accounts
• The type of retirement accounts involved

The Age of the Couple

When distributing retirement savings in a divorce, the couple’s age is an essential consideration. This affects their individual needs and determines how much money they will require for retirement. For instance, a couple within five years of retirement might need to divide their assets differently from a pair just beginning to save for retirement.

The Health of the Couple

The health of those divorcing is another important factor to consider when dividing retirement accounts. This is because each person’s physical wellbeing will affect their retirement income. For example, a couple who is in good health may be able to withdraw more money from their retirement accounts than a couple who is in poor health.

The Financial Needs of the Couple

The financial needs of the couple are also an important consideration when dividing retirement accounts during a divorce. This is because the couple’s individual financial needs will affect how much money they require from their retirement accounts. Factors such as the age of children and lifestyle will play a role when considering how this is approached.

The Tax Implications of Dividing the Accounts

It is very important to consider the tax repercussions of distributing retirement accounts after a divorce. Tax penalties are incurred whenever money is withdrawn from a retirement account early. The amount owed can also be affected by the couple’s tax bracket. When dividing their accounts, a couple in a high tax bracket, for instance, might be required to pay more taxes than a couple in a low tax bracket.

The Type of Retirement Accounts Involved

When distributing retirement funds in a divorce, it’s crucial to take the type of retirement accounts into consideration. This is due to the fact that different retirement account types have unique regulations for account division. For instance, there are various guidelines for separating 401(k) plans and IRAs.

Contact a Minnesota Divorce Lawyer

Dividing retirement accounts in a divorce can be a complex and time-consuming process. However, by understanding the factors involved and working with an experienced family law attorney, older couples can get the best possible outcome for themselves and their retirement. Call us at (612) 294-2200 for a free consultation.

Contact Experienced Minnesota Divorce Attorneys

Divorces are stressful enough without having to worry about your future financial security. If you are facing a divorce with retirement accounts in question, please contact Heimerl & Lammers to help you throughout the process and ensure your rights are protected. We have offices throughout the Twin Cities area.