Aside from your home, your retirement accounts will likely be the most valuable assets to divide in your impending divorce.
However, the equitable division of pensions and other retirement accounts depends on a qualified domestic relations order or QDRO.
About the QDRO
A qualified domestic relations order recognizes that a non-payee has the right to either a portion or even all of a pension or company-sponsored retirement plan belonging to someone else. In the case of divorce, the account holder is usually the soon-to-be ex-spouse. The QDRO can assist in the prompt transfer of funds.
Possible penalties
Determining how to divide retirement funds can become complicated as in the case of splitting a 401(k). For example, if the owner of the account is younger than 59 and a half, he or she may have to pay a 10% penalty as well as income tax on the withdrawal of funds. However, a 401(k) also comes with the provision that during a divorce, the account holder can make a one-time distribution to his or her spouse without penalty.
An exchange of assets
The equitable distribution of a retirement account is not always a 50-50 split. Sometimes an exchange of assets is in order. For instance, if a pension has approximately the same value as the marital home, the account holder might keep the pension while the other party keeps the house. Ultimately, a QDRO will play a role and at the end of the day, a judge may determine what is equitable when it comes to dividing retirement accounts.