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How to divide a retirement plan in a divorce

On Behalf of | Mar 12, 2018 | Divorce

Couples in Minnesota who are getting a divorce might need to divide a retirement account. If it is an IRA, they will need to roll it over into another IRA account. The bank or other financial services company where the IRA is kept will be able to advise about the paperwork needed and any other regulations.

For a 401(k) or a pension plan, it is necessary to get a document known as a qualified domestic relations order. This is a document that must be approved by the plan administrator. The QDRO needs to explain how distributions will be made. A distribution can be rolled over to an IRA or a person can receive it directly. Although a distribution because of a divorce will exempt it from penalties, a person who receives a direct payment will still have to pay regular taxes on it.

The recipient of the 401(k) or other pension plan distribution should avoid two pitfalls. One is agreeing to let the owner of the retirement plan change the beneficiary before the divorce is final. If the owner dies prior to the divorce becoming final, the other spouse might get nothing. The QDRO should also specify percentages of the retirement account instead of dollar amounts to account for possible fluctuations in value.

A couple may want to try to negotiate a settlement regarding division of the retirement account and other property. If there is too much conflict, the couple might still be able to reach an agreement through mediation or another alternative dispute resolution method. This may allow couples the opportunity to reach more creative solutions to dividing property that suits them better than a decision reached by a judge might. It also allows them to remain more in control of the process and the outcome.

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