Splitting 401(k) Accounts During a Divorce

If 401(k) assets are divided between the two parties of a divorce in the wrong way, there could be very expensive penalties as well as a large tax bill. One ex-spouse may also receive more of the funds than the holder of the account intended. Divorcing couples in Tennessee can avoid ending up with these results by taking time to learn about the rules that govern their particular type of retirement account.

Workplace retirement plans, which include traditional pensions and 401(k) accounts, have to be divided using a qualified domestic relations order. Using this legal document is the only avenue through which an ex-spouse will be able to obtain the portion of the funds to which they are entitled.

The QDRO is a document that is distinct from the divorce agreement, even though its contents are based on what is stipulated in the agreement. Before the order is filed with the court, its contents should be closely reviewed to verify that they reflect the spirit of the divorce agreement. If there are more than one retirement accounts that have to be divided, each account will require its own QDRO.

The QDRO should specify if the 401(k) funds are to be transferred in a rollover IRA or distributed directly to the recipient. After the document has been filed, the administrator of the 401(k) plan will have to approve it before the transfer is executed.

An attorney who practices divorce law may work to ensure that the rights and interests of clients are protected during property division disputes regarding retirement accounts, offshore accounts, real estate and other assets. The attorney could even litigate to obtain the assets that allow a client to have a stable financial future after a divorce.

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