Divorce can take some time to complete, even after the last hearing in court. After months of negotiations or waiting in between court hearings, divorcing spouses typically breathe a sigh of relief when the judge finalizes the divorce. The judge’s final ruling determines how they divide their property and debts. It may also include orders related to financial support and parental responsibilities.
Once there are court orders in place, people tend to act as though they are completely done with the divorce process. In reality, they still have to carry out the instructions included in the property division decree and any other applicable orders related to financial support or minor children. In scenarios where spouses have retirement savings or pensions, the property division decree may include instructions to divide retirement accounts.
Doing so without penalties and tax consequences typically requires a qualified domestic relations order (QDRO). People burned out by legal proceedings may put off that process, only to leave themselves financially vulnerable. In most cases, drafting and recording a QDRO as soon as possible is in the best interests of the spouses.
Delays can lead to misconduct
The property division decree may include instructions to allocate a certain percentage of the retirement savings to the spouse who is not the account holder. The courts base that determination on the savings accrued by the valuation date set by the spouses or the courts. So long as the spouses draft, sign and submit a QDRO, it is possible to split even a tax-deferred retirement savings account, such as a 401(k), without penalties.
If people do not take action promptly, they may find that the account has substantially less in it later than they might expect. The account holder might arrange for withdrawals or distributions. Their actions could result in the recipient spouse receiving far less than they expected. The only way to protect against financial misconduct related to retirement account withdrawals is to address the division of the account as soon as possible after the divorce.
People preparing to draft a QDRO may require the support of a professional familiar with these unique documents and the law. Addressing retirement savings and pensions as soon as possible after a divorce can help people ensure that they receive what they deserve according to their final property settlement.