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How to properly identify asset division in a divorce

Dividing marital property that includes retirement accounts can be a complex process.
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    January 18, 2014 /24-7PressRelease/ -- Missouri couples that have been through a divorce can attest to the challenging nature of the process. From the emotional turmoil of the end of a marriage and dreams to the pains of losing time with one's children, the difficulties are many. Identifying marital and separate property and the ensuing division of marital property is commonly one of the hardest parts of a divorce for many couples.

There are many types of assets and liabilities that must be split when a couple divorces. For each one, there are ways of handling the transaction that can either save or cost additional money to one or both party. Understanding how to save instead of lose that part of an asset is important for your life today and for your future.

Identify splits by percent, not dollars

Any time that you are splitting an asset that has a value subject to change due to market conditions, you should always state the distribution in terms of which spouse shall receive which percentage of the account. Never should you state the distribution in exact dollars based upon a valuation that is not likely to remain stable until the date of the actual transfer. Doing this is a sure way to cost one or both parties a serious loss.

To illustrate the point, let us pretend that your IRA is found to be currently worth $80,000. If you promise your soon-to-be former partner that he or she will receive $40,000 and you will also receive, $40,000, there will be a shortfall if later on the value is only $60,000.

Because the date that an account is valued is not necessarily the date that a transfer is conducted, you can only ensure a proportionally fair distribution in the end by stating any division in terms of the portion of the account, such as 50 percent to each party.

Always use a Qualified Domestic Relations Order

This relatively simple thing can save you a lot of money. While required only for some transactions, it is able to be used in many others that are part of your divorce settlement. The QDRO lets the IRS and any other governing body know beyond a shadow of a doubt that the transaction you are completing is part of a divorce.

If this is not made clear for any reason, you can be subjected to very high taxes and early withdrawal or other penalties on the funds. This results in the loss of a large portion of your investment. Whether you are dividing a retirement account or processing some other financial transaction, always discuss the use of the QDRO with your attorney.

Discuss divisions with your attorney carefully

Making sure that your attorney understands your unique situation for property division is an important thing. Take the time when selecting your counsel to ask detailed questions about these matters. Doing so can help you to preserve your future assets.

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