October 19, 2013 /24-7PressRelease/
-- The experience of a divorce can be extremely hard and full of emotions for both spouses involved. Many times, critical issues such as property and asset division can make the process of a divorce take quite a lengthy time, prolonging the challenges for both parties. However, it is important to take care when working through a divorce settlement so that you avoid unnecessary problems along the way.
The division of assets can be a complex area and involves more than simply an agreement between yourself and your spouse. There can be legal parameters that must be heeded in order to prevent you from losing valuable assets. Transferring ownership or interest in a retirement account is one such topic requiring great care during a divorce
Take caution when dividing retirement accounts
Certainly it is common for retirement accounts to be considered part of a marital estate and therefore divided in some fashion during a divorce. However, simply identifying which spouse gets what is not all that is required to protect such assets.
If the division of retirement accounts
is not handled properly, one or both spouses could face unnecessary taxes and penalties. Both parties could also end up losing some or all of their expected investment.
Method of division
While it may seem natural to delineate division in terms of percentage of ownership, this is one of the riskiest things you could do. Because the valuation of a retirement account can change at any time based upon market conditions, you could be opening yourself up for a loss if you do this.
Imagine that you have an account that on the day of your agreement is valued at $100,000 and you and your spouse agree that each party will receive $50,000 from the account.
Then, fast forward yourself to a date in the future when you will actually process the transfer or division. If your account value on this day is $75,000, it is now impossible for both parties to receive $50,000 as originally intended. Sometimes, the spouse that owned the original account can be required to pay the other spouse the full amount as originally agreed upon, leaving him or herself with a lesser amount and possibly nothing depending upon the difference in value.
To avoid this pitfall, you might consider basing the division upon percentages of value rather than dollar amounts. This is true for any financial asset where the value is subject to change.
Timing of distribution or transfer
There are very specific times at which you are allowed to transfer funds from a retirement account during a divorce and avoid taxes or penalties. If you stray from this, you could see a portion of your investment lost unnecessarily. Make sure to work with an experienced professional to ensure you do not fall into this trap.
Processing your retirement split via a Qualified Domestic Relations Order helps to ensure that courts and state and federal tax departments are clear that the distribution is part of a divorce settlement and not a crafty way that one spouse or the other is trying to gain early access to funds.
Seek proper advice and counsel
With so much at stake in these situations, it is important to work with an experienced attorney. Getting professional guidance is the only way you can be sure to protect yourself and the value of your assets.
Article provided by DeBast, McFarland & Richardson, LLP
Visit us at www.dmr-law.com