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Follow all the rules when dividing a 401(k)

On Behalf of | Mar 21, 2018 | Family Law And Divorce |

When Colorado couples begin the process of divorce, it can become clear just how financially entangled the pair has become throughout their marriage. This is especially true for lengthy marriages or those in which the couple has accumulated significant assets. In many cases, the single largest asset that is part of the marital property of the couple is their retirement fund. Both partners are often depending on those accounts for their future financial health and stability, so dealing with the potential of dividing them can be a fraught emotional issue as well as a financial one.

In fact, 62 percent of divorce lawyers said that retirement funds were the most contentious issue for their clients as they worked through negotiations. However, the emotional fallout of the division of these accounts is not the only thing that divorcing spouses need to be concerned with. Retirement accounts are heavily regulated, and failing to adhere to those guidelines when distributing the account could lead to significant costs in taxes and fees.

Proper distribution of any retirement account based in the workplace, whether it is a defined benefit plan or a 401(k), requires a court order. A QDRO, or qualified domestic relations order, must be drafted and obtained from the divorce court; it is not issued automatically along with the decree. The QDRO should specify the account to be distributed, and when there are multiple accounts, a separate order is required for each.

A family law and divorce attorney may work with their client throughout the process in order to preserve the integrity of their retirement funds as well as manage the distribution in a responsible manner. A lawyer maybe able to draft the necessary documents and communicate directly with the funds manager in order to ensure that the distribution meets all financial and legal requirements.

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