When a California couple begins the process of divorce, they will negotiate how to divide their assets. A big portion of the negotiations will relate to the investment and retirement accounts that are part of their assets. With the stable financial future of each spouse at stake, there is a lot to keep in mind.
As spouses prepare to negotiate over assets during the divorce , they should consider the impact that taxes and penalty fees can have if an asset is not divided properly or if funds are withdrawn from the asset too early. For example, 401(k) and 403(b) plans require a Qualified Domestic Relations Order, also known as a QDRO, before they can be divided between the spouses without penalty. For some plans, the spouse withdrawing the money must roll it over into an IRA to avoid penalties. IRAs, however, do not allow early withdrawal, so if a person withdraws funds before he or she is 59.5 years old, the amount withdrawn will be taxed, and a penalty will occur as well.
The ending of a marriage will result in many changes and many of these will involve the couple’s finances. To prepare for that process, it is important to have records for all investment and retirement accounts, including:
When it comes to beneficiaries, it is also important to remember to contact the managers of all your accounts to delete the former spouse as a beneficiary and to add one or more beneficiaries to the account. This small action can prevent a lot of headaches later on.
The division of property can be a complex process even in the most amicable of splits. Finding an attorney who can support you during this process might help you navigate the different issues that may provide challenges.