Divorce in Texas is difficult, and splitting retirement plans can add stress. It’s important to know exactly what’s required to ensure the process goes as smoothly as possible. Here are some tips to help you get started.
Determine the amount that needs to be split
Before splitting any retirement plans, it’s important to calculate the amount of each asset that must be divided. This process should include everything from pension funds and 401(k) plans to annuities and IRAs.
Consider the tax implications
Not only will there be taxes due on the amount that is split, but any funds received from the plan may affect your current tax filing status. The spouse receiving the funds could even be subject to a 10% penalty if they are not yet 59 ½ years old. It’s important to understand all of the potential tax implications before splitting any retirement plans.
Determine who has ownership of the assets
The court will usually determine who owns each asset and how it should be divided. Depending on your state, transferring ownership without a court order might be possible. If the divorce decree does not stipulate who should keep the IRA, the spouse with the account will typically remain the owner.
Create a Qualified Domestic Relations Order (QDRO)
A QDRO is a document created by the court that lays out the details of how a retirement plan should be divided. It typically includes information such as the name and address of each party, the amount to be split, and any applicable tax withholding information.
Stick to the timeline
Once a QDRO has been created, it’s important to stick to the timeline set forth by the court. Any delays could result in additional taxes or penalties. It’s also important to ensure that all paperwork is filed correctly with the appropriate agencies promptly.
Understand any applicable fees
Finally, it’s important to understand any fees associated with splitting retirement plans. These may include administrative costs, investment management fees, or account closure fees. Understanding these costs is important to avoid any surprises down the road.
By taking the time to understand the process and prepare for it accordingly, you can help ensure that your retirement plans are divided as smoothly as possible following a divorce. This will give you peace of mind and enable you to confidently move forward with your life.