Bigger assets, like real estate and financial accounts, often become the focal point of property division in modern divorces. Minnesota couples going through divorce often do not agree about what is the most reasonable or appropriate way to split their property.
Sometimes, couples negotiate directly to arrange a settlement. Other times, their attorneys help facilitate those negotiations. When couples can’t reach a solution on their own, then they will ask a judge to split their property for them.
Whether you are in the process of negotiating a settlement or preparing for a litigated divorce, you will probably worry about whether or not you can split your retirement account without losing some of its value due to taxes and penalties.
Retirement accounts divided during a divorce won’t incur penalties
It is stressful to realize that you need to divide what you have put aside for retirement with your ex. However, under Minnesota’s equitable distribution standard, the chances are quite good that at least a portion of your retirement savings will be marital property subject to division.
Amounts accrued during the marriage are likely subject to division between, depending on what the judge decides.
Typically, withdrawals from certain kinds of tax-sheltered retirement accounts before you reach retirement age will result in penalties and taxes. The goal of these financial consequences is to prevent people from depleting their retirement savings. A properly performed division of your retirement assets as part of a divorce can help you avoid those penalties.
Dividing a retirement account requires a QDRO
Once you reach a settlement agreement or the judge presiding over the divorce determines how to split the account, the attorney of one of the spouses will draft a Qualified Domestic Relations Order (QDRO). The next step involves the court reviewing and approving the document, and then the spouse receiving the assets will typically file paperwork with the person or company managing the retirement benefits.
Provided that everything occurs in accordance with the proper process, a QDRO will eliminate the penalties associated with early withdrawal from a retirement account. You can divide retirement benefits in a divorce in Minnesota without losing more than what your spouse receives.