It is only natural for those facing divorce to worry about their finances. The process of divorcing is notoriously expensive. Additionally, they have to split their property with their spouses.
People often worry about their biggest assets as they start preparing for divorce. For some people, retirement savings are a top priority. They might be close to retirement age or worried about their ability to rebuild their savings before the completion of the divorce process. How can those who have identified retirement resources as a top priority preserve what they have saved?
Settling with a spouse
Divorce is an unpredictable process. One spouse never knows what the other might claim or try to do in court. Additionally, it can be very difficult to predict how a judge may respond to the situation.
Those who want to preserve their retirement savings when they divorce may decide that the best option is to settle with their spouses. They can agree to give up their interest in other property in exchange for retaining the retirement account in full.
Other times, they might agree to take on more marital debt in exchange for their retention of a 401(k) or other retirement savings account. Settling helps people achieve their goals of preserving specific assets when they divorce.
Using specialized documents
Sometimes, a property division agreement or order entered by a judge requires the division of a retirement account. In such cases, one spouse may worry about not just losing a portion of the account to the other spouse but also facing tax consequences and a 10% penalty.
They may be able to avoid those secondary financial losses by having an attorney draft a qualified domestic relations order (QDRO). A QDRO, when properly executed, allows for the division of a retirement savings account without financial penalties or income tax consequences.
The financial professional managing the retirement account can transfer a specific percentage of the account balance into a new account in the name of the other spouse. Provided that both spouses leave the remaining balances in their separate accounts, they don’t have to worry about penalties or the withdrawal counting as a source of income for the year.
Setting specific goals for property division proceedings can help people navigate a pending divorce. With the right goals and support, spouses can help preserve specific resources and begin rebuilding their finances after a divorce.