Splitting your retirement accounts during divorce is something you might have to do, but it’s not something you want to do yourself. This is a complicated task, and it’s best left to professionals.
Even if you want to have a low-cost divorce, it’s a good idea to have an accountant or attorney talk to you about dividing retirement accounts. There are tax implications and other legal issues that have to be addressed. For instance, if you don’t get the right kind of legal agreement before splitting a retirement account, you could end up with penalties from withdrawing money or tax bills from taking it out at the wrong time.
It’s a good idea to talk to someone who specializes in qualified domestic relations orders (QDRO). This person is trained in how to split retirement plans and pensions when a client is going through divorce. The QDRO order is a judicial order that allows for that division. It’s important to sign a QDRO, because if your ex-spouse passes away before it’s signed, you could end up with nothing.
Fortunately, a QDRO isn’t very expensive. Usually between $500 and a few thousand dollars, the QDRO makes sure you don’t have unexpected fees or expenses related to a pension or retirement fund later. Working with someone qualified to prepare the QDRO matters, since getting even a few terms wrong or wording the QDRO incorrectly could end up costing you thousands.
While it’s possible to do all of this yourself, it’s better to allow someone with experience to help you through the process. Good representation helps you get the most out of your divorce and helps you avoid unnecessary errors.
Source: NASDAQ, “Splitting retirement accounts is tricky for DIY divorce,” Beth Pinsker, Nov. 06, 2017