Older adults likely have many years of employment under their belts, and therefore, likely have larger retirement accounts. In fact, other than the marital home, retirement accounts may be an older couple’s largest asset. So when it comes to dividing up these retirement assets in a gray divorce, or a divorce involving adults close to or past retirement age, couples will need to be especially careful.
Dividing up retirement accounts in a divorce
The process for dividing up retirement funds will depend on the type of retirement account in question. Generally, the main types of retirement accounts are IRAs, 401(k)s and pensions. For 401(k)s and pensions, a qualified domestic relations order (QDRO) is necessary to transfer account rights to another spouse. The QDRO will divide retirement plan assets by:
- Awarding a separate interest in the balance of the account
- Letting the divorcing spouse receive a portion of the benefits that are paid out
Transferring the balance of a IRA from one spouse directly to the other spouse’s IRA is fairly straightforward, does not require an QDRO and can be done without fear of getting taxed or incurring penalties. However, if the funds are not being transferred to another IRA, there will be a withdrawal penalty and income tax applied to the amount in the account. In such cases, a Roth IRA may be a good option, as it allows for a tax-free withdrawal. The terms of the division of an IRA must be detailed in the couple’s divorce or separation agreement.
The process for dividing up a pension is more challenging and will depend on the specific employer. Unlike IRAs which have a set amount, pensions require you to determine the value of future benefits. If the pensioner spouse is already getting their benefits, a QDRO can be used to divide up the payments.
Dividing up retirement benefits in Ohio can be complicated, particularly if there is a lot of money on the line. An experienced divorce attorney in your area can handle all retirement and pension marital property issues in your divorce.