When a Florida couple is going through divorce, there are a number of important financial decisions that must be made. Property division is among the most important aspects of any divorce, especially for spouses who are nearing retirement age. It is important to understand the proper way to handle retirement savings during divorce.

When it comes to IRAs, spouses must understand that the transfer of assets from one account to another must be completed within a year of the time of divorce. Otherwise, the transfer will trigger an automatic IRS audit. It is also important to ensure that the IRA transfer is clearly designated as “incident to divorce,” so that neither spouse is hit with an early withdrawal penalty.

When it comes to qualified plans, a special document called a Qualified Domestic Relations Order (QDRO) is used to transfer assets. Here again, it is important to designate the transfer as a divorce-related process in order to avoid taxation or penalties. The spouse who receives assets by way of a QDRO is entitled to invest those assets in an IRA or separate qualified retirement plan.

Florida spouses who are preparing to divide their retirement assets during property division must take care to ensure that the transfer of assets is smooth and problem free. One final step that must be taken during the transfer is a review of the designated beneficiaries for each account. In most cases, spouses will wish to make changes to their beneficiary designations to ensure that their retirement savings passed down to the appropriate heir when the time comes.

Source: Forbes, “Divorcing? How to Split Up Retirement Nest Eggs“, Duncan Rolph, Nov. 23, 2016