Three mistakes to be wary of when splitting up retirement assets

Some of the most important assets to consider during a divorce may be those that pertain to your retirement plan, even if you’re still working and you’re not using them yet. Dividing these assets can be complicated and, naturally, the assets will have a large impact on your financial stability after the split. To avoid major mistakes, be sure you do the following:

1. Don’t forget about taxes and fees if taking cash.

If you are getting a portion of your spouse’s retirement plan, remember that cashing that plan out means you’ll likely have to pay taxes and an early distribution penalty. If you choose to simply have the money rolled over into your own retirement account, you can preserve more overall wealth.

2. Don’t be imprecise when laying out the distribution of a pension.

A pension can be split up in a divorce. If it’s your spouse’s pension, you may still be able to claim a portion of it, meaning you’ll get regular payments. However, make sure that you are very precise when determining how the division will be done. For example, determine whether you want to use a shared interest approach or a separate interest approach.

3. Don’t forget to look at future tax implications with non-qualified retirement plans.

When splitting up non-qualified retirement plans–deferred compensation plans, for example– remember that there are going to be tax consequences for the person who receives the money. Additionally, the person who is the participant in the plan will have to retain the funds and then distribute them properly to his or her former spouse. As such, when determining how much shall be held and paid out, don’t forget to take taxes into account, creating a payment plan that defines how each person will pay these taxes.

It’s important not to rush through the property division process, but to step back and consider the complexities of retirement plans to find a fair division plan that considers both current and future obligations regarding taxes, payment strategies, and similar items.

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