For many couples in Florida today, splitting retirement account assets is a common thing during a divorce. Whether these accounts are still young with many years left to grow in value or they are mature and have been growing for decades, this can be a hard reality for spouses. Letting go of large amounts of saved assets is never easy. However, what can be even harder is watching a good portion of that money be lost to unnecessary taxes or fees.
Fortunately, it can be possible for spouses to prevent the need to pay some taxes or fees when splitting 401(K) accounts as part of a divorce settlement. The U.S. Department of Labor explains that the use of a Qualified Domestic Relations Order is essential to making sure this can be done. A QDRO lets tax entities and retirement plan administrators know that specific financial transactions are approved as part of divorce agreements.
Typically, money is not allowed to be withdrawn from retirement funds except by the fund owner and only for retirement purposes. Specific criteria such as age must be met. Distributions that fail to meet all criteria may be subject to penalties and taxes. Distributions of money to a non-account holding spouse would fall in this category. The use of a Qualified Domestic Relations Order, however, can provide the assistance needed to legally approve the transfer sans penalties or taxes.
This information is not intended to provide legal advice but general information for Florida residents about how to protect against unnecessary asset loss during a divorce.