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How to divide retirement assets when divorcing

Tennessee couples getting a divorce might want to consider how they are going to divide their retirement assets when they get their divorces. Sometimes people overlook issues like retirement assets in their hurry to get their divorces finalized. However, neglecting issues such as this can prove to be costly in the end.

According a CFP profession and CPA for Access Wealth Planning, the number one issue associated with retirement accounts in taxation. However, if couples ensure that their retirement assets are divided in the appropriate manner, they can avoid the issue of taxation. For example, most divorce decrees have sections denoting exactly how assets will be distributed. As long as they are distributed in the manner that the divorce decree states, generally, they are not taxed as part of the property division process.

The CFP professional for Ameriprise Financial stated that it is very important for couples to discuss their specific situations with tax professionals to ensure they are aware of any of the possible ramifications to the way that they choose to divide their retirement assets. According to one CPA and CFP professional, the best way to make transfer between individual retirement accounts is through a direct transfer.

One way for couples to divide their retirement assets is qualified domestic relations orders, also known simply as QDROs. QDROs only apply to retirement accounts that are held by workplace plans. Although transferring assets between individual retirement accounts generally does not require the use of QDROs, some tax professionals say that it is still a good idea to use them to avoid any unnecessary taxes and penalties.

Divorce attorneys might be able to assist divorcing couples in dividing their property. They might be able to help them come with terms that they can both agree to in a less contentious manner than they might have done otherwise.

Source: Fox Business, "How to Split up Retirement Assets in a Divorce", Marilyn Bowden, September 16, 2013