For many divorcing couples, coming to an agreement about how to divvy up assets and property is the most important and time-consuming part of the divorce process. Depending on an individual's age, after real estate, retirement assets may be among one's most-valuable assets. It's crucial, therefore, to understand how retirement assets are valued and how to avoid tax penalties when transferring assets from these accounts.
When it comes to divorce; assets held in retirement accounts like 401(k)s, 403(b)s, traditional IRAs and Roth IRAs are fair game and, in Massachusetts, subject to equitable distribution between splitting spouses. While an individual who is going through a divorce in his or her mid 30s may have difficulty truly understanding the full benefits of going after an ex's retirement assets, such assets can help an individual achieve long-term financial goals and ensure for financial security during retirement.
When attempting to determine how to divide retirement assets, an attorney can provide valuable advice and insight. An attorney will take a number of considerations into account, including an individual's age, his or her own retirement accounts and other income sources when negotiating the distribution of retirement assets as well as when advising a client on whether to transfer, rollover or cash out these assets.
Different retirement accounts are subject to different tax implications. How retirement assets are taxed when contributions are made will impact how they are taxed when taken out. Consequently, an individual may wrongly believe that he or she received a certain amount of an ex-spouse's retirement assets when in fact that amount could be significantly reduced after taxes.
Matters related to the division of assets and property can be complex and this is often particularly true when it comes to retirement assets. It's wise, therefore, to turn to a divorce attorney who is well-versed in matters related to the division of retirement assets and who can help ensure that an individual agrees to settlement terms that are ultimately in his or her best interest.
Source: Fox Business, "Who Gets the Retirement Accounts in a Divorce?," AJ Smith, Nov. 17, 2015