An unfortunate reality is that not every marriage ends with happily ever after. For some people, four out of every ten, according to one statistic, their partnership will end with a divorce. While each ending gives a person a chance to move on to bigger and better things, there are some matters that you will most likely need to handle during the divorce process that could be critical to your financial future.
One big question is how to equitably divide retirement and investment accounts that a couple accumulated during their marriage. At the end of your marriage, uncovering the value of these accounts, gathering financial information, and properly dividing the funds is part of the process. Many individuals in Utah who are contemplating or already facing divorce find that professional help can be useful since so much is at stake.
Preparing for the costs divorce
Divorce can come with its fair share of costs. If you are lucky enough to anticipate the separation from your partner, you may wish to set aside some money for future expenses. This savings account will be public knowledge to your soon-to-be ex during the divorce, of course. Having it ready will help with attorney fees, court costs, therapist’s bills, financial planning fees, forensic accounting costs and more, and will help you better prepare for the transition ahead.
Types of retirement and investment accounts
Over the years, a couple is likely to fund several different types of investment accounts. At the end of the marriage, these accounts will be uncovered and divided in a fair and equitable manner between the two former partners. Examples of these accounts are 401(k)s, IRAs, and traditional pension plans. Some high-income couples may also have a type of plan called the deferred compensation plan.
Dividing the IRAs
IRAs can be split as part of the divorce decree, and they do not have to have specialized documents for their division. The husband and the wife may each own multiple IRAs, which can make the process of splitting the total amount and potentially redeploying some of the funds back into one of their IRAs a bit challenging.
Separating qualified plans
Certain IRS policies govern qualified plans, such as a 401(k), and that makes them more complex to divide. A Qualified Domestic Relations Order is used to enforce them. The QDRO is an official document that allows the transfer of these funds from one spouse to another, so that the withdrawal from the original plan is protected from certain tax repercussions. There can be a lot of complexities and tax implications involved with QDROs for both parties.
Energy invested in planning and preparing for the division of assets is energy well-spent when it affords each individual a smoother transition. Ending a marriage can affect your finances, but with proper planning and acquiring experienced support and guidance, you can significantly increase your odds of achieving the best possible outcome for your specific circumstances.