You should be aware however, that there could be significant tax consequences to removing funds from a “pre-tax” or retirement account. If you and your spouse will be dividing this type of asset, you should contact our office about how to avoid tax consequences.
Federal law allows for a transfer of these funds pursuant to a divorce without penalties or tax implications if it is done in a certain way. A separate court order, known as a Qualified Domestic Relations Order (QDRO), is required. Our office drafts QDROs for parties or attorneys in order to divide this type of asset. This document is required for the company to be able to give someone else a portion of another person’s retirement account. It can only be done for the benefit of a spouse, former spouse or minor child. The date of division, whether there are gains and losses on that amount, how to handle any loans, the name and components of the plan, are just a few of the many issues that must be addressed in the QDRO. Some of these provisions are typically ignored by practitioners and lead to further litigation down the road or the Plan rejecting (and ignoring) the Order.