Risks to retirement funds during divorce

New Jersey couples going through a divorce can learn how to protect their important retirement assets from unnecessary taxes and penalties.

Spouses in and around Woodland Park, New Jersey that are getting divorced can have many things to be concerned about. These concerns can often be related to the age or stage of life of the couple. One of the complex aspects of divorce that faces people with small children is how to arrange custody and visitation for the shared children. For people who are older and without children still at home, worries about protecting retirement assets and other financial assets from loss in the property division settlement can be paramount.

More and more people today than in past generations are getting divorced at 50 years old or beyond according to the National Center for Family and Marriage Research. This makes fears of retirement fund loss a reality for many people because there are no longer decades left in which to make up such losses. Fortunately there are some ways to minimize the amount of assets lost during these times.

Use a QDRO

Both Fox Business and the Tampa Bay Times provide valuable information what is called the Qualified Domestic Relations Order. This is essentially a legal document that can be filed when processing certain transactions during a divorce. While a QDRO is not required to be filed when splitting retirement funds, it is one of the most powerful ways of making sure that the IRS knows the transaction is part of a divorce.

If the IRS is allowed to believe that the splitting of a retirement account is simply a way to obtain funds before retirement, high taxes and penalties can be assessed. When this happens, a large portion of the savings is essentially evaporated in the eyes of the spouses. The QDRO can help to prevent this from happening.

Reinvest properly

Forbes also notes that reinvesting any assets from a 401K or other retirement account can help to avoid the assessment of early withdrawal fees and taxes. A report about one woman told the story of how she chose to keep money from her former husband’s 401K account and not to reinvest it. After attempting to fight the IRS, she was left with a large back tax bill. Had she chosen to reinvest the money from the beginning, that bill could have been avoided.

Recommendations for divorcing New Jersey couples

A divorce is never easy. With emotions running high, making the right choices can be difficult. Working with an experienced attorney is recommended to help people navigate the complexities of a divorce.

Keywords: divorce, retirement, assets


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