Most people work their entire careers with the goal of saving toward a retirement of their dreams. Unfortunately, life seldom goes as planned, and a divorce could derail retirement plans. Washington residents who are concerned about how the property division of their divorce will impact their financial future may benefit from learning how certain assets are handled in divorce proceedings.
During the marriage, retirement earnings are generally viewed by the courts as marital assets. This typically includes all employment-based retirement plans and other savings accounts. In the absence of a prenuptial agreement, there are different rules and varying tax consequences that apply to the retirement accounts.
If a settlement agreement stipulates that a 401(k) or similar employer-based retirement account will be divided, the division will require a Qualified Domestic Relations Order to avoid penalties and taxes. This document will outline how the plan is to be divided. Those who receive funds from these accounts must report them as income unless they are reincorporated into a separate retirement account.
There are two main types of retirement plans. The first type is a Defined Contribution Plan, which describes 401(k) accounts that have a daily cash value, making division a fairly straightforward proposition. The other is a Defined Benefit Plan, which is typical of most pension plans. It does not have an assigned value until benefits are due. A former spouse may select one of three options: a lump sum payment when the pension matures, receive a portion of the monthly benefits, or the division can be delayed until a later date through reserved jurisdiction.
IRA accounts are often included in property division negotiations. A former spouse may either roll them into another account or receive them as cash and pay any applicable fees and taxes. In order to preserve retirement goals, divorcing Washington residents may benefit from consulting with an experienced attorney who can help structure a satisfactory settlement agreement.
The Law Offices of Stacy D. Heard, PLLC
