Gather Information and Value the Assets
Both spouses will need to provide information about their 401(k), pension, and IRA accounts to determine the value. The account statements will show the value of your 401(k) and IRA. The statements will also show the contributions made to the account during the marriage. The marital portion of the 401(k) or IRA subject to division includes contributions and growth that occurred during the marriage. A pension is valued based on age, years of employment, contributions and other factors. Hire an expert to value a spouse's pension to ensure the valuation is correct.
A Qualified Domestic Relations Order (QDRO) is Required To Divide Certain Retirement Assets
A QDRO is a legal order that outlines how the 401(k) funds or a pension will be divided between the spouses and is typically prepared by an attorney. The QDRO specifies the amount or percentage of the 401(k) or pension that each spouse is entitled to receive. A judge will approve the order and then it is submitted to the plan administrator of the 401(k) or pension plan for implementation. The plan administrator will set up separate accounts for each spouse and the funds are then transferred to each spouse's separate account.
Dividing an IRA does not require a QDRO
You do not need a QDRO to divide an Individual Retirement Account. The divorcing couple will prepare a letter instructing the financial institution to divide the account. A copy of the divorce agreement and the letter of instruction are all that is needed to divide the IRA. The non-owner of the IRA will have to open a retirement account into which their share of the IRA funds will be transferred.
Tax Implications When Dividing Retirement Assets
It's important to consider the tax implications of dividing a retirement account. There could be tax consequences for both parties depending on how the transfer is handled. Generally tax consequences can be avoided if the retirement funds are transferred directly into another retirement account. Taxes will be due when the funds are withdrawn by the account owner. Most individuals do not withdraw retirement funds until they are ready to retire.
Consult with a Divorce Attorney
Dividing retirement accounts are complex due to the legal and financial implications. It's advisable to consult with an experienced family law attorney or divorce mediator to guide you through the process. Many attorneys in Connecticut specialize in preparing QDROs. The divorced couple will hire an experienced QDRO attorney to prepare their legal documents to ensure the transfer of retirement funds is completed in a timely manner after divorce.
Protect Your Retirement Assets When You Divorce
Laws involving the division of retirement assets in a divorce can change over time; therefore, consult with a divorce attorney or divorce mediator when there are retirement assets to be divided. Divorce attorneys are knowledgeable about laws and regulations related to divorce and property division. Dividing retirement assets can get a bit tricky so it's a good idea to have a skilled, professional divorce lawyer on your side.
Maya Murphy P.C. has proudly been included in the 2024 Edition of Best Law Firms®, ranked among the top firms in the nation. In addition, Managing Partner Joseph C. Maya has been selected to The Best Lawyers in America® 2024 for his work in Employment Law and Education Law in Connecticut. Recognition in Best Lawyers® is awarded to firms and attorneys who demonstrate excellence in the industry, and is widely regarded by both clients and legal professionals as a significant honor.
Our firm in Westport, Connecticut serves clients with legal assistance all over the state, including the towns of: Ansonia, Beacon Falls, Bethany, Bethel, Branford, Bridgeport, Brookfield, Cheshire, Danbury, Darien, Derby, East Haven, Easton, Fairfield, Greenwich, Guilford, Hamden, Madison, Meriden, Middlebury, Milford, Monroe, Naugatuck, New Canaan, New Fairfield, New Haven, Newton, North Branford, North Haven, Norwalk, Orange, Oxford, Prospect, Redding, Ridgefield, Seymour, Shelton, Sherman, Southbury, Stamford, Stratford, Trumbull, Wallingford, Waterbury, West Haven, Weston, Westport, Wilton, and Woodbridge. In addition to assisting clients in Connecticut, our firm handles education law and employment law matters in New York as well.
If you have any questions about employment law or education law in Connecticut, or would like to speak to an attorney about a legal matter, please contact Joseph C. Maya and the other experienced attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com to schedule a free initial consultation today.
