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Dealing with retirement accounts during property division

When Virginia spouses choose to divorce, property division can be a complex and important part of the process. After all, the financial consequences of the end of a marriage often linger for some time after the emotional and practical issues have been dealt with. For many married couples, retirement funds are often some of the largest assets they own — even more valuable than the marital home or other real estate. Many couples may have multiple accounts, including employment-based plans as well as private Individual Retirement Accounts (IRAs). All of them are typically subject to distribution during a divorce, regardless of the name on any particular account.

Employment-based retirement programs like 401(k)s or pensions are considered qualified plans because they are covered under the Employee Retirement and Income Security Act (ERISA). As a result, splitting them in a divorce is a bit more complex. Divorcing spouses must obtain a special court order called a Qualified Domestic Relations Order (QDRO); the divorce decree alone is insufficient. On the other hand, IRAs can be divided without a QDRO simply by presenting the divorce decree. Still, there are important factors to keep in mind when dividing an IRA in a divorce.

Early distributions taken from an IRA before the age of 59 1/2 come with additional tax penalties of 10% on top of regular income taxes. There are several exceptions to the penalty, but divorce is not one of them. While splitting an IRA does not incur a penalty, the recipient spouse must roll the money into their own retirement fund to avoid the costs.

People with significant retirement funds and other assets may find that the property division process is complicated. A family law attorney could work with a divorcing spouse to represent their interests and negotiate a fair settlement.

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