One of the blessings of the do-it-yourself age is that individuals can easily access the means to complete legal transactions. Unfortunately, the do-it-yourself approach does not train individuals in the legal specifics or account for considerations regarding certain circumstances. In most cases, it is preferable to contact a lawyer to avoid costly blunders. This is especially true for splitting retirement accounts during a divorce in Florida.
Pension plans, IRAs and other investments can come with rules on how the funds can be allocated, switched and withdrawn. Sometimes an early withdrawal can come with a hefty tax as well as a withdrawal penalty. Sometimes, in the event of a breakup, the only option is to withdraw early. But is a penalty avoidable?
Yes, penalties can be avoided during the dissolution of a marriage by filing a QDRO, or a qualified domestic relations order. This document, filed at the time of the divorce, allows for the transfer of retirement funds from one retirement account to another without the fee. The document must be filed correctly, in compliance with state law and in the accepted format of the particular retirement plan sponsor.
Splitting retirement accounts can be tricky during divorce. A mistake can potentially costs hundreds of thousands of dollars and result in adverse tax consequences. It can be important to track down old, forgotten accounts as well. In Florida, some individuals choose to avoid the hassle of DIY divorce by choosing a family law attorney who is familiar with the creation of QRDOs and splitting retirement accounts.
Source: Reuters, "Your Money: Splitting retirement accounts is tricky for DIY divorce", Beth Pinsker, Nov. 6, 2017