When you’re going through a divorce, your emotions may be running high, so financial issues like taxes may not be at the forefront of your mind. However, there are important things to consider when it comes to dividing your annuities, 401(k)s and IRAs as it pertains to family law in California.
Dividing pensions and 401(k)s
Dividing pensions and 401(k)s during a divorce can be challenging because you have to get a qualified domestic relations order, or QDRO. This is a court order that is different from a divorce decree. The QDRO is a necessary document that gives a spouse legal rights to all or part of a 401(k). Each QDRO plan has administrative and provision regulations. For instance, some administrators may require a former spouse to wait until retirement to divide all annuity assets.
Options for dividing assets
Family law attorneys may encourage divorcing spouses to reach a peaceful compromise when it comes to asset division. Here are some choices to consider:
- One spouse will keep the 401(k) in exchange for another asset that is equal in value.
- The 401(k) is divided between the two spouses, which requires the assistance of a financial advisor.
- The 401(k) is liquidated for the purpose of paying one spouse, which requires legal approval.
- The 401(k) is rolled into an IRA to avoid tax penalties and provide the spouse receiving the payment with more account management rights.
You have a lot of issues to worry about while going through a divorce, so it helps to have guidance. Speak with a family law attorney about the annuities you’re entitled to in divorce to find out how to legally divide these assets with your spouse.