The end of a marriage is often a time of sadness, anger, frustration, confusion and other turbulent emotions. You may feel like your heart is breaking, or that you are losing your sense of your place in the universe. By contrast, the process of divorce itself is often largely about money.
These two sides of divorce can be disorienting for many people. The two aspects can seem to be in conflict with each other. This is one reason why it's important to have help from a skilled lawyer.
One difficult matter that comes up in many divorces is the question of how to split a retirement account in the property division process. When a married couple divorces, they must split the marital property according to standards of fairness under Virginia law. All the couple's marital assets must be divided, including retirement accounts. However, many retirement accounts don't allow owners to withdraw money until the account is mature, and most incur tax penalties if they are withdrawn too early. How can divorcing couples split an account if they can't withdraw from it?
A common solution to this problem is known as a qualified domestic relations order, or QDRO. This is a way to move part of the contents of one retirement account to another without incurring bank penalties or taxes.
Without a QDRO, a divorcing couple can lose a lot of money. One divorcing couple that tried to manage their own property division provides a cautionary tale. One spouse withdrew $250,000 from a 401(k) plan to give it to his soon-to-be ex, incurring $110,000 in bank and tax penalties.
These unfortunate ex-spouses could have saved themselves a lot of money and headaches if they had conferred with an experienced divorce attorney. If you are facing divorce, don't make expensive mistakes. Speak to a skilled lawyer about your options as soon as you can.
Source: Reuters, "Your money: Splitting retirement accounts is tricky for DIY divorce," Beth Pinsker, Nov. 6, 2017