Many Tennessee residents may agree that when couples divorce, property division is often the most complicated aspect of the separation. According to Tennessee laws, all marital property is equitably distributed in the event of a divorce. Marital property in Tennessee includes all assets and debts that a couple has accumulated during the course of the marriage as well as all business assets and individual retirement accounts. However, IRAs are often overlooked by divorcing spouses.
IRAs are usually worth a large sum of money and after divorce, an adequate share of that money can help a separated spouse to overcome a number of financial difficulties that arise as a result of the divorce. The first step to ensure an equitable division is identifying the retirement accounts of the soon-to-be-estranged spouse. In many cases, if a person has switched jobs, there is a good likelihood that there is more than one IRA or 401(k). Being aware of the details of all such accounts is important.
Once the accounts have been identified, it is important to understand how those accounts are regulated because, while some accounts, like IRAs, are governed by state laws, others, such as pension plans and 401(k) plans, are governed by federal laws. Generally, only the amount that was accrued during the marriage is brought to the table for division. However, there may be exemptions on a case-by-case basis. Therefore, seeking professional help to determine the exact nature and value of such accounts may be a wise decision.
After the property division exercise has been completed, the next step is to make the division official by filing a Qualified Domestic Relations Order, which needs to be sent to a judge for approval. A QDRO is especially important because retirement benefits have special tax consequences that can be avoided through a QDRO. Moreover, if the legalities are not addressed at the time of property division, making modifications at a later stage is often difficult.
Once the money from a separated spouse’s retirement has been secured, it should be deposited into a new retirement account. There is a choice between a standard market product, such as a mutual fund, or a self-directed account. A wise option at this juncture might be investing in property but whatever the decision is, it must be thought through carefully.
Source: Huffington Post, “The #1 Most Overlooked Divorce Asset,” Daniel Sentell, Oct. 2, 2014