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Will you pay penalties to split retirement accounts in a divorce?

On Behalf of | Apr 11, 2022 | Divorce

Your retirement savings can provide a good standard of living for you and your spouse when you are done pursuing your careers in your golden years. You likely started saving based on your estimated retirement expenses years ago.

Now that the two of you want to divorce, you know you will need to divide the retirement accounts. While it is only in one spouse’s name, most of the contributions are from during your marriage. That amount, at least, is subject to division in your divorce.

If you don’t have other assets of significant value to offset the value of your retirement savings, dividing the balance may be the only equitable way to share your account. If you aren’t yet old enough to retire, does that mean you will lose even more of the balance to penalties and fees?

The courts can help you avoid secondary losses

Typically, if you divide the retirement account on your own before the appropriate age, you will be subject to taxes and penalties because of the early withdrawal. However, when you divide the account in accordance with a court order, you can eliminate those financial penalties.

Once the courts enter a property division decision, one of the lawyers will draft a qualified domestic relations order. The courts approve the document, and then the spouses present the documents to the individual or business managing the retirement account.

When properly executed, a QDRO can protect you from penalties and taxes for a withdrawal from your shared retirement account in a divorce. Learning more about the rules that govern the division of retirement savings can help individuals prepare for divorce.