During a divorce, your mind is often occupied by a myriad of issues, so taxes are likely among the least pressing things at this time. In Michigan, most people often forget about their 401(k)s, pensions and annuities. Before divorcing your partner, ensure that there is the proper handling of these assets by each partner. You should try to reach an amicable agreement on who to settle with each account and exchange for which asset. Further, it’s important to understand that different retirement plans have different rules. Here are the steps to follow when splitting property and retirement accounts during a divorce.
Annuities are complex and require different tax calculations than most assets. However, annuities are split depending on how the two parties negotiate. You and your ex-partner need to agree on the percentages that each person should have. Penalties, surrender fees and tax consequences are some of the issues that divorcees worry about. However, the IRS has set exceptions in such scenarios.
To effectively divide annuities, you can sign a new contract and then write two new contracts for each spouse. If the annuities are to be transferred to one spouse, just one contract is required. It is an efficient method with fewer tax consequences.
Splitting IRAs is simple since the accounts are subject to property state rules. However, the rules will differ depending on the state. In most states, if the IRA was opened before or during the marriage and the contributions were made by joint funds, it is a marital asset. However, if the IRA is inherited property, it is considered detached from other matrimonial assets. A trustee-to-trustee transfer is an ideal method of dividing IRAs. In such a case, assets are moved from you IRA to your spouse’s account. This method avoids a 10% penalty.
Are you going through a divorce and worried about how to divide your property and retirement benefits? You may want to contact a family law attorney for assistance.