Divorce can have a big impact on retirement, especially for the unprepared
As most people know, divorce not only takes an emotional toll, but a financial one as well. Property that was built up over the years during a marriage will suddenly have to be divided and one of the spouses could also be responsible for making child and spousal support payments. One of the financial concerns that many divorcing spouses overlook, however, are retirement funds. For younger couples, retirement planning might not involve the same emotional stakes that child custody or support do, but making sure a divorce does not adversely affect one's retirement could have significant benefits later on.
Retirement funds divided
In most divorces, according to the Washington Post, retirement funds like a 401(k), IRA, and pension can be divided between both spouses. However, people shouldn't simply rely on a court to guarantee their right to a portion of the retirement funds. A Qualified Domestic Relations Order (QDRO) will be needed in order to divide the retirement funds. A QDRO is also an important tool in avoiding transfer taxes that former spouses would otherwise be subject to.
Additionally, there are other important tax considerations when retirement accounts are being divided. Rolling over assets from one tax-deferred retirement account to another, for example, can help avoid unwanted penalties and taxes.
Assets and debt
One of the big surprises that affects many divorces, especially high-asset divorces or divorces involving family businesses, is the revelation of hidden assets, according to USA Today. Assets may be hidden from a former spouse as a way of trying to negotiate a more favorable divorce settlement, and learning about those assets could significantly contribute to one's retirement funds. In some cases, a forensic accountant may be required to uncover such assets.
Additionally, debts can also become a problem. Although spouses will generally not be on the hook for the other spouse's debts, if joint credit cards or loans are involved that one spouse is not fully aware of then problems can ensue. A credit report when filing for divorce can help people learn what debts are in their name so as to make sure they are not faced with any surprises later on.
Divorce and legal representation
As the above article shows, divorce can have serious financial repercussions, especially on a person's retirement plan. When going through the divorce process, it is important to be prepared and the best preparation usually involves seeking out professional advice.
An experienced family law attorney, for example, can help people considering or going through a divorce during the steps ahead. Not only can such an attorney provide the help needed to ensure retirement funds are protected during a divorce, but they can also give clients invaluable advice when dealing with other important family law issues.