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Retirement assets require special attention during divorce

Retirement assets frequently form the largest pool of cash that divorcing couples in Tennessee need to split. According to a recent survey by the American Academy of Matrimonial Lawyers, retirement accounts represent the second most common issue that divorcing couples fight over (alimony is No. 1). Even in amicable divorces, the parties need to pay close attention to the details when dividing the funds to avoid early withdrawal fees and high income taxes.

Workplace retirement plans require a document known as a qualified domestic relations order to disburse funds. The QDRO, which emerges as part of the divorce agreement, enables a plan administrator to release funds. Ideally, the parties will set up new retirement plans to receive the funds. This is called a trustee-to-trustee transfer, and it removes the obligation to pay income taxes and fees because the money went into a new retirement account. When people need the money after the divorce, they must investigate the taxes and fees that they might owe upon receiving the cash directly.

The details of the QDRO must be precisely declared to avoid delays or unexpected taxes. Each retirement plan requires its own specific order. The terms of the order should ideally state a percentage of the funds that will be released to each party instead of a specific figure. This will prevent unintended problems if investment returns raise or lower the account balance during the divorce process.

A person who must navigate property division at the end of a marriage could gain guidance from a family law attorney. Legal advice about how to protect non-marital assets or achieve compromises with a hostile ex-partner could help prevent prolonged litigation. An attorney might also alert a client to tax obligations that arise from the sale of real estate or business assets.

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