How Colorado residents can protect future investments during divorce
Dividing marital property involves any number of assets and in today's society, the need to adequately identify ownership of retirement accounts is common.
December 20, 2013 /24-7PressRelease/ -- How Colorado residents can protect future investments during divorce
Article provided by Kishinevsky & Raykin, Attorneys at Law
Visit us at http://www.coloradolawteam.com
A divorce is one of the most emotionally challenging events a person can encounter. It impacts familial relationships, often causes a change in living situations and can have serious financial implications for the short-term and long-term. Dividing marital property involves any number of assets and in today's society, the need to adequately identify ownership of retirement accounts as part of a divorce property division is common.
Great care should be executed when transferring ownership in such accounts. Simply because an agreement has been reached between spouses is not enough to prevent the government from assessing taxes unnecessarily. The laws that govern such transfers do allow for them to be completed sans penalties but only within very clear boundaries. Other factors can also affect the ultimate value of asset that spouses receive.
Methods for determining account valuations
One of the cardinal rules of financial asset division, whether an IRA, pension or other type of account, is to ensure that any interest is identified in terms of the percent of the fund's value as opposed to specific dollar amounts. The reason for this is because the monetary value of such assets is subject to change based upon market conditions.
Let's imagine that you have a pension fund that is currently valued at $100,000 and you and your soon-to-be former spouse make an agreement that you will each receive $50,000 of the fund. So far, it seems simple. However, when the date arrives when the actual fund transfer will occur, the market value at that time could make the account worth only $75,000.
If this happens, one of you may end up legally required to pay the other person the designated $50,000 meaning that the remaining spouse receives only $25,000. If your original agreement stated that each spouse would receive 50 percent of the account's value, each party would receive $37,500 and the equal portion would be honored.
Timing makes a difference
The laws are very clear about the window in which retirement distributions can occur. If such transactions are completed outside of the stated guidelines, strong penalties or taxes can be assessed, dramatically reducing the amount of money you could end up with for your retirement. Losing a large amount of your saved income in this way is something you do not want to do.
Always use a QRDO
A Qualified Domestic Relations Order is required in order to process some financial transactions in the face of a divorce. However, it can also be used for those transactions that do not require it. Utilizing the QRDO more frequently eliminates any potential confusion as to the reason for your funds transfer. Not only can this potentially save you money by protecting your asset it can also save you money by reducing the need to have your attorney or other professional spend time proving the validity of the transfer.
Professional input is important
Due to the critical nature of financial transactions during a divorce, it is always recommended that you work closely with an attorney to ensure that your assets remain protected.
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