How to divide retirement accounts in a divorce

In Florida, any assets held inside of a marital estate may be subject to the state’s property division laws. Generally speaking, retirement accounts such as an IRA, 401(k) or 403(b) are considered to be part of the joint estate. However, it is important to follow the proper protocol for separating such accounts.

When should retirement assets be divided?

A retirement account should not be divided until after a divorce decree is issued. Otherwise, any attempt to take money out of it will be seen as an early withdrawal if you are under the age of 55 1/2, so you’ll pay a 10% penalty on top of any income taxes owed on the amount taken out of the account. If you are dividing a qualified account such as a 401(k) or 403(b), you will need to do so per the terms of a qualified domestic relations order (QDRO).

Put funds into a new account quickly

You will likely have the option of putting any funds received from a spouse’s account directly into an IRA that is in your name. However, you also have the option of receiving a check that you can deposit into an IRA or a personal taxable account. Generally speaking, the division of retirement accounts is easier if you have funds rolled into a retirement account in your name. Furthermore, you won’t have to pay taxes or penalties on money that is rolled over.

It may be a good idea to meet with a financial adviser prior to accepting a divorce settlement. Doing so may give you more insight as to how much an asset may be worth as well as how to receive it properly.