Spouses dividing valuable retirement assets must take care to assess tax burdens, avoid overlooking assets and confirm the approval of the final division.
Property division can be one of the most financially important aspects of a divorce. For divorcing couples with substantial net worth, the division of retirement assets is often particularly a concern. These assets may rank among a couple’s most valuable property, and they are essential to helping each spouse maintain an accustomed standard of living. Unfortunately, these assets can also be legally complex to divide. This makes it important for divorcing couples in Philadelphia to keep the following questions in mind when determining how to distribute this property.
Are all assets accounted for?
In Pennsylvania, all of the retirement assets that a spouse accrues while married are considered marital property and are subject to distribution between both spouses. Unfortunately, many people may not be aware of all of the retirement contributions that their spouses have made over the years. To address this issue, The Huffington Post recommends that divorcing spouses contact each company that the other spouse worked for to request information about any retirement plans that the spouse contributed to.
Forbes notes that sometimes, spouses may have contributed to a retirement fund both before and after getting married. Spouses should understand that in these cases, the premarital contributions have become commingled with marital assets, so they may no longer be considered non-marital assets. As a result, the entire value of the fund may be subject to division.
What are the tax implications?
When spouses divide retirement assets, it is crucial that they look past the face value of each asset and consider tax liability. After taxes are levied, the remaining value of some assets may be remarkably different. According to The Wall Street Journal, spouses should consider whether contributions to a retirement account were already taxed or had taxes deferred. When evaluating investments, spouses should assess the amount of associated capital gains tax.
Is the proposed distribution acceptable?
Finally, before a high-asset divorce is finalized, spouses should confirm that the agreed division of retirement assets actually can be carried out. These assets must be divided in accordance with state and federal law by a specialized legal order called a Qualified Domestic Relations Order. Unfortunately, as Forbes notes, pension plan administrators may reject a QDRO on various grounds, even if it was approved in divorce court.
If spouses learn that a QDRO has been rejected before divorce proceedings are finalized, they may be able to renegotiate the division of retirement assets and draft a new plan. However, if spouses only submit the QDRO after the divorce is over, they may lose out on assets that they expected to receive.
How spouses can protect their interests
To avoid missteps during the process of retirement asset division, spouses may want to consider working with an attorney with experience in this area. An attorney may be able to offer guidance on the technical laws that govern this aspect of the divorce process. An attorney may also be able to reduce the risk that a spouse will make mistakes or oversights that prove financially damaging in the long run.