Everyone understands that divorce can be a difficult process. Between custody/visitation disputes, property division and the adjustment of starting life again on your own, it’s understandable that couples would want to hurry through the process as quickly as possible.
However, there are some aspects of the process that can’t simply be slapped together and really require some careful attention. One example is the division of retirement accounts. Without the help of an experienced Minnesota family law attorney, mistakes can be made dividing these funds, mistakes that can not only waste time but cost some serious money. To avoid some of these issues, pay attention to the following bits of advice when dividing retirement accounts.
Timing matters – Retirement Funds in a Minnesota Divorce
When dividing retirement accounts, something that many people may not understand is that timing matters. Laws regarding the division of these accounts create a narrow window of time where the money can be divided without incurring taxes and penalties. If a couple waits too long to file the necessary paperwork they might inadvertently cost themselves thousands of dollars.
That means if you’re divorcing you need to be sure that all the required documents, including a Qualified Domestic Relations Order (QDRO), is issued as close to the time of divorce as possible. If not, you could not only lose money due to fees and taxes, but in the event of a death or other emergency, potentially even lose your rights to certain funds.
Paperwork matters – Retirement Funds in a Minnesota Divorce
When dividing retirement accounts timing is important and so is the way in which the accounts are divided. Simply calling your retirement account administrator and asking that the funds be divided between yourself and your spouse could lead to substantial fees and penalties. To avoid this, a document known as a Qualified Domestic Relations Order must be submitted. The QDRO details how the funds ought to be split and ensures that the division happens without incurring expensive fees.
Always use a percentage – Retirement Funds in a Minnesota Divorce
A final bit of advice for those facing the division of retirement money is to use a percentage, not actual dollars, when drafting your divorce agreement and QDRO. Listing a specific dollar figure could lead to an inequitable division in the event that the account balance rises or falls while waiting to be divided. By putting in a percentage, you can be sure that neither party unfairly benefits in the split.
A good example of how this can make a serious difference is if you assume your retirement account’s current market value is $300,000. You and your former spouse agree to split the value evenly, so $150,000 each. Now imagine that time passes and several months later, when the process is finalized, the fund has taken a hit and the value of the account has dropped to $250,000. Depending on how the QDRO was written, this might mean that one person walks away with $150,000 while the other party gets $100,000. However, if the original language had stated that the fund was simply to be divided 50/50, then such changes in value would not lead to inequitable division.
An experienced Minnesota family law attorney can help walk you through the difficult process of divorce, including offering advice on confusing financial issues such as alimony and helping negotiate emotional subjects like child custody arrangements. For more information on divorce in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 360-4721.
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