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Retirement and divorce – this is what you should know

Divorcing later in life comes with its special set of complications, especially when you were planning on living off of the funds in your retirement accounts. You and your husband accumulated enough wealth that you did not have to be overly concerned about money. However, now that the two of you are headed toward divorce, you can't help but wonder if your divorce settlement will be enough for you to live on.

Your primary Denver residence, vacation home and other property will be part of the items you and your husband will have to divide. In addition, the retirement accounts and pension plans will also take a leading role in the settlement process. Dividing retirement accounts can be a very complicated process that includes tax issues and other issues that require specialized treatment. If you are planning to divorce, there are some key factors you should keep in mind when it comes to dividing retirement accounts and pensions.

Retirement funds might be marital property

In general, any funds that you or your husband added to the retirements during the course of your marriage are martial property in the eyes of the court. This includes contributions either of you made to 401(k) plans directly from your wages or deposits you made as individuals. Any money that was in the retirement account prior to saying your vows is separate property and will revert to its original owner when you divorce.

Qualified Domestic Relations Order (QDRO)

If you and your husband have to divide a pension plan or 401(k), then the court must issue a Qualified Domestic Relations Order (QDRO). Some retirement accounts, such as an Individual Retirement Account (IRA) and military pensions do not require this order and instead have their own requirements for handling the accounts in a divorce. The QDRO is a set of instructions for the plan's administrator to follow in dividing the account and how the account should make payments to the employee's spouse.

Present the QDRO before the divorce

Before your divorce is final, you must present the QDRO to the plan administrator. Some plans will only make distributions over a period of time that typically begins at retirement age. This means that if you were counting on a lump sum distribution from a pension plan or retirement account, you may not get it. If you submit the QDRO before the divorce is final, you will find out how the payments will be structured and you will have a chance to renegotiate for a lump sum settlement that consists of other assets instead of the retirement account. By waiting until the divorce is final, you risk not having that cash immediately available to help with expenses and you will not be able to go back to court and ask for a different settlement.

If you are considering divorce, it is important to take appropriate steps to protect your interests, especially when it comes to dividing retirement accounts and other high-value assets. Your divorce attorney will help you work out a settlement that meets your needs.

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