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Managing retirement accounts during a divorce

The need for a fair distribution coupled with a desire to prevent unnecessary financial losses can feel challenging when facing divorce.
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    February 06, 2014 /24-7PressRelease/ -- Managing retirement accounts during a divorce

Article provided by Lopez Family Law
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Couples in New Mexico that are facing the prospect of a divorce as the New Year begins have many issues with which to contend. When working through the end of a marriage, the emotional toll of working out child custody, child support, alimony, living arrangements, property division and more can be difficult and exhausting.

On top of practical and emotional matters, financial concerns are also high on people's minds during this process. The need for a fair distribution coupled with a desire to prevent unnecessary financial losses can feel challenging indeed. With many couples today more focused on planning for the long-term, dividing up retirement accounts has become a common part of many divorce settlement processes.

How to protect your investments

When dividing retirement accounts or pension funds, there are some ways that all too easily can lead to severe loss of investment if proper care is not taken. Fortunately, there are some relatively simple ways that you can avoid this for yourself.
-Make good use of the QDRO: QDRO stands for Qualified Domestic Relations Order. This can be one of the most important tools that you utilize in your divorceprocess. It is a means by which the court and the Internal Revenue Service are told that a particular financial transaction is part of your divorce settlement. This avoids any taxes or penalties from being assessed which can happen if, for example, the IRS sees that you received a distribution from a retirement account but you are not yet at retirement age. The QDRO makes it clear that you are not simply trying to take retirement money early but are following the stipulations of your divorce decree as part of your property division settlement.

-Mark your calendar: Many financial transactions, especially those involving retirement accounts, must be processed within certain timeframes. Be careful to note these dates and ensure that your money is managed within those parameters. Failure to do so is yet another way that much of your savings can be lost to taxes or other penalties.

-Divide in percentages: Make sure that your divorce decree stipulates any and all divisions in terms of the percentage of the asset rather than in exact dollars and cents. In the case of retirement funds where actual values can fluctuate, this protects you in the event that the value on the date that a disbursement is scheduled to take place is less than on the date that the valuation took place. You will still receive a lower sum but it will be the appropriate ratio relative to what your spouse receives, in line with your original agreement.

Professional help is important

The ability to lose part of your retirement money from sloppy handling is not something you should risk. When you are going through a divorce, it is very important to work with an attorney who understands these and other ways to preserve your current and future earnings.

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