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How to divide your retirement accounts in a divorce

If you preparing for a divorce, chances are that you have retirement accounts that need to be divided.

Although retirement accounts like 401(k)s are usually earned by just one spouse, they are often considered marital property that has to be divided equitably between the spouses during a divorce.

Here are some steps to follow for dividing a 401(k) during your divorce, many of which were discussed in this article:

Work with a divorce lawyer to make sure the accounts are accurately valued. The 401(k) is a complex account, and you could walk away with much less than you are entitled to if the account isn’t valued properly with the help of an experienced divorce lawyer.

Learn about your plan to understand your options and make the best decision. Depending on your plan’s details, you may decide to split the assets, keep the assets intact and use other martial property to pay your spouse, transfer assets into your spouse’s own 401(k), or some other option.

Make sure to have a qualified domestic relations order (QDRO) drafted. A very specific process must take place in order to have a 401(k) divided, and it includes getting a QDRO from the court, which tells the plan’s administrator how the division will take place.

Consider the tax implications of dividing a 401(k). Keep in mind that there are certain tax implications that apply to dividing retirement assets as part of a divorce, including a 10 percent penalty on the withdrawals that are made after the initial cash payment.

Fully understand the early withdrawal penalties that apply. Along those same lines, you should understand the penalties that apply for having money distributed before the age of retirement, including 20 percent being withheld by the employer for prepaying the tax.

Hopefully these steps give you a little more confidence as you prepare to divide your retirement assets during your divorce. Of course, the best way to make sure that it is done equitably and in your best interests is by working with an experienced lawyer.

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