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Do penalties further diminish the retirement savings you divide?

On Behalf of | Aug 1, 2022 | Divorce |

The longer you have remained married, the harder it may be for you to imagine your future after a divorce. You and your spouse probably share the majority of your largest assets, including the home where you live, the vehicles that you drive and the retirement savings you have slowly accrued over your working years.

You may already understand that the equitable distribution rules in Minnesota give you the right to request a share of a retirement account even if your name is not on the account. You may worry about what you will receive after dividing those savings in half. The idea of further diminishing your savings by dividing the accounts and possibly triggering an early withdrawal penalty may make you worry about whether you will have the necessary resources for retirement.

The good news is that proper division of your retirement accounts will prevent such penalties.

A lawyer can help you draft a QDRO

It is more common than you might realize for divorcing couples to need to split a retirement account when they and their marriages. Provided that one of your lawyers drafts a Qualified Domestic Relations Order (QDRO)and the courts approve it, you can use the QDRO to divide the account without penalties or taxes applying to the transfer.

If you then proceed to withdraw money from the new account started for the portion of retirement benefits allocated to you in the divorce, there could be penalties that apply to that withdrawal. However, the simple act of splitting the account into two separate accounts will not trigger those penalties when done in compliance with a QDRO.

Careful planning can help you preserve your retirement

Divorce is an expensive process that often comes with financial complications. From needing to refinance when interest rates are quite high to the loss of the multi-vehicle discount on your insurance policy, there will inevitably be multiple financial complications as you seek to separate your life from your spouse’s.

You can avoid some of those expenses with proper strategy during the divorce process. Understanding the rules that apply when dividing your most valuable property, such as your retirement accounts, can help you achieve a fair outcome while also preserving your resources for your future retirement.

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