On behalf of North Tampa Legal Group posted in property division on Wednesday, March 14, 2018.
A retirement plan can be a helpful tool for individuals to meet their financial needs after they are ready to stop working. During a divorce, many times retirement plans will be split between the two parties during property division. There are different types of plans, and different methods are used to separate the two. In Florida, a person who uses certain strategies when dividing investment plans can avoid some common fees and penalties.
A 401(k) plan, the kind that is commonly offered by employers, is typically not withdrawn from until the account holder is at retirement age. If a person chooses to cash out early, he or she may face an early withdrawal penalty. This penalty can be avoided during divorce if the two parties use a Qualified Domestic Relations Order. The QDRO will be drafted in accordance with the divorce decree and spells out the details for the trustee-to-trustee transfer. The QDRO is separate from a divorce decree, and will be approved by the 401(k) administrator.
Other investment plans like IRAs do not need to be divided with a QDRO. Usually the plan can be split by filing paperwork with the account custodian and by sending a copy of the divorce decree, which must specify the division, the amount and when it will occur. A transfer that is not completed using trustee-to-trustee methods can be subject to income taxes.
By becoming one’s own best advocate, it is possible to avoid mistakes during property division in Florida. Part of that starts with understanding the various rules that govern the transfer of retirement assets. Another piece of the puzzle for many is working with an experienced family law attorney who is familiar with the process.
Source: CNBC, “How to avoid mistakes dividing up 401(k) assets in divorce“, Sarah O’Brien, March 7, 2018