There is so much to think about when dealing with the myriad challenges of divorce, which may leave important elements of your financial future vulnerable. It’s hard to think as far into the future as retirement, but that’s one of the major types of savings impacted by divorce. Anyone going through this difficult process in Minnesota is doing themself a big favor by keeping the big picture in mind.
Retirement accounts come with their own special set of tax laws and regulations that differs from the governing rules for other types of assets. While these laws are there to protect people’s retirement funds and prevent the system from being taken advantage of, it creates a hurdle in the divorce process when trying to find ways to split up the funds.
Working together to come to an agreement
One way that ex-spouses can work together to split up a 401(k) or other types of retirement plans is through a divorce decree. This financial asset decision must be clearly laid out and agreed upon by both parties for it to work without anyone falling prey to legal loopholes. But since divorce usually means the two parties will agree on little to nothing, financial and legal guidance is often helpful.
The place to find out how your retirement plan is affected by the divorce process is in your summary plan description. This is easy to obtain: You can either call your plan administrator or talk to your employer if the benefits come from your work.
For employer-sponsored plans, a qualified domestic relations order, or QDRO, must be issued by the court. This is done using a form from your plan administrator and is usually drafted by an attorney.
The asset split is official once a judge signs it. Plan administrators may then enforce the split after accepting the QDRO. These rules apply to all plans that are governed by ERISA.
Divorce is almost always a messy affair with countless things to deal with at the same time. It’s important not to let the stress and chaos prevent you from securing your financial future by protecting your retirement funds in this process.