Going through divorce brings up a lot of questions for both parties. What will happen to all of your retirement savings is one of the big issues. The reality is that most Michigan residents will end up having to split their retirement accounts with their spouses.
Determining the type of account
When it comes to properly splitting your retirement account, you’ll need to determine what type of account it is. There are various types of retirement accounts, but the most common are IRAs and 401(k)s. Depending on what type of account it is, the family law court will need to issue different orders.
Understanding the different orders
IRA accounts will need to be split with a Transfer Incident to Divorce Order. On the other hand, 401(k)s need to be split with a Qualified Domestic Relations Order. Both of these orders are meant to provide a tax-free transaction. These funds are also meant to be transferred without the interference of creditors or lawsuits.
Proposing an alternative solution
It’s not uncommon for couples to create their own settlements that involve both individuals keeping their retirements intact. This tends to be a good option for cases where both spouses have similar amounts in their retirement accounts. However, it’s important to always consider the taxes now and in the future when valuing retirement accounts. If both accounts are of the same value but one is funded by pre-tax dollars, that person is going to pay more in taxes when they go to use the funds.
Splitting up your retirement account during a divorce can be a lengthy and confusing process. It’s a good idea to contact an attorney to assist you with splitting up retirement accounts as a legal professional has knowledge and experience that you don’t.