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Dividing retirement assets in an Alabama divorce

The most difficult part of many divorces in Alabama is the property division process. Splitting one household into two is no easy task. In addition to dealing with investments, the marital home, and various household items, it is necessary to divide retirement assets during divorce. This can be quite complicated because many married couples save for retirement as a team; a retirement account that was designed to finance a married couple’s retirement will likely not stretch quite as far for two separate retirements. 

Retirement assets are incredibly important to many Alabama residents, and it is important that they protect these assets during divorce and ensure that they are divided fairly.

When dividing 401(k) accounts, pensions and other investments, it is critical to consider the tax implications. For example, if an IRA is to be transferred as part of a divorce settlement, this needs to be done in a certain way to avoid a damaging tax impact. Directly transferring assets from one IRA account into another IRA account should not incur taxes, as long as the transfer is required by the divorce settlement, but other types of transfers may be taxable.

One way to ensure that the division of retirement assets is distributed in the best way possible is through a qualified domestic relations order. A QDRO is a legal document that generally allows an individual to divide a retirement account with an ex-spouse without incurring fees and taxes. QDROs are complicated documents that stipulate many additional details about the division of retirement benefits.

In addition to considering these things, it is important to update beneficiary designations on various accounts upon divorce. Many people neglect to do this, and when this happens there is a risk that one’s ex-spouse could ultimately receive benefits that were intended for another person – such as a child or a new spouse.

Dividing retirement assets during divorce is not an easy task. Those who are going through a divorce should talk to their family law attorneys about how to best protect their retirement interests.

Source: BusinessWeek, “How to divide your retirement assets in a divorce,” Dec. 31, 2013