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Splitting retirement assets in a divorce

North Carolina readers may be interested in a recent article geared towards couples in the midst of a divorce in which financial advisers warn individuals not to speed through the settlement process. When dividing assets, couples should remember to account for retirement funds.

IRA transfers between parties filing for divorce are not considered taxable if the transfer is detailed in a written divorce decree. The best way to ensure that IRA transfers will remain tax exempt is if they are transferred directly from one account to the other. Parties should keep in mind that if the original IRA owner is under the age of 59 and a half, that owner could be penalized by 10% if the funds are transferred prior to the finalization of the divorce.

Another way that divorcing spouses can avoid taxes and penalties ordinarily tied to transfers of workplace retirement funds is to file a properly-worded qualified domestic relations order. For example, if the order stipulates that each party will receive $50,000 from a $100,000 retirement account, the account holder could be left with less if the market subsequently drops and reduces the amount of money in the account. However, if the order states that each party will receive half of the retirement fund, the account holder's half will be protected.

A North Carolina attorney with experience in divorce and similar family law matters may be able to provide advice and counsel to a client contemplating divorce with respect to the best ways to divide and transfer retirement assets, including the negotiation and preparation of a qualified domestic relations order. Such an attorney may also be able to advise a client concerning other legal issues relating to a divorce.

Source: FOX Business, "How to split up retirement assets in a divorce", Marrilyn Bowden, September 16, 2013

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