Divorce can be a frustrating time, especially for people who have spent years saving for their retirement and now risk losing what they worked so hard for. If worrying about the division of your retirement accounts is keeping you up at night, give David Ward a call. He can help you understand Georgia laws regarding retirement accounts and divorce: 770-383-1973.
How Does Georgia View Retirement Accounts During a Divorce?
Georgia bases its property division process on a concept known as equitable distribution, which means that couples must divide all marital property — anything you or your spouse acquire during the marriage — in a fair and just manner. This can include retirement accounts, such as IRAs, Roth IRAs, 401(k)s, pensions, and other retirement savings.
It is important to note that when you opened the account does not matter. Even if you opened the account prior to marriage, all contributions you made during the marriage are marital property.
How Does Georgia Divide Retirement Accounts?
Your spouse could walk away with a portion of your retirement savings or the court could award it all to you. It depends heavily on the facts of your case, and your specific circumstances. The factors a court will consider include:
- Each individual’s financial circumstances
- The division of other large assets
- Each spouse’s contribution to the account
- Each spouse’s contribution to keeping the home and raising the family
- Each spouse’s ability to earn an income outside the home
- Because the division of retirement accounts is complex and requires adhering to strict state and federal laws, judges may choose to award spousal support or other assets of comparable value rather than dividing the account.
What Is a QDRO and Do I Need One?
Qualified Domestic Relations Orders (QDRO) are legal forms that “recognize the existence of an alternate payee’s right to receive” benefits from an employer-provided retirement account. The QDRO tells the administrator of a 401(k) or other qualified retirement plan how to split retirement benefits after a divorce. This paperwork includes specific instructions on the terms and conditions the party agreed to or the court ordered. These include:
- Who receives benefits
- How much each party receives
- When to pay these benefits
- How to pay these benefits
- Whether or not you need a QDRO depends on your type of retirement plan. You only need a QDRO for an employer-provided plan that the court has ordered you to split.
In addition, according to Investopedia, while many legal professionals use the phrase “QDRO” to refer to any paperwork regarding the split of a retirement account, it is important to note that you would use a “transfer incident to divorce,” not QDRO, for an IRA.
What Do I Need to Consider When it Comes to Taxes?
Many people fear owing a large portion of their retirement savings to the IRS after dividing their accounts during a divorce, and this fear is not entirely unfounded. It is critical that your lawyer files the proper paperwork and follows state and federal laws to the letter when handling the division of these accounts.
If you agree to divide savings or the judge orders a split, a QDRO or transfer incident to divorce is necessary, regardless of whether you are dividing an IRA, Roth IRA, or 401(k) plan.
With an IRA, as long as you request a transfer incident to divorce, the government will not assess any taxes on the transaction. However, if you improperly labeled this transaction or failed to file the proper paperwork, you will owe the government both the applicable taxes and possibly an early withdrawal penalty based on the amount you transferred to your former spouse.
Accounts that require QDROs function in the same manner. As long as the courts and your lawyer complete the paperwork correctly, these transactions are typically tax-free. Your plan administrator simply rolls the assets listed in the QDRO into a qualified plan, IRA, or Roth IRA in your spouse’s name and that individual is responsible for the taxes or penalties on any future distributions.
How Can David J. Ward Help?
Dividing retirement accounts is complicated. Having the right attorney representing you is critical when it comes to property division and the complex financial transactions that often come with it. Attorney David J. Ward works with individuals facing divorce in Gwinnett County, ensuring they get a fair settlement.
If you have questions about property division and your retirement accounts or other financial concerns regarding your divorce, contact us today at 770-383-1973 to schedule your REAL Case Analysis.