How to prevent the loss of assets during a divorce
With close to four Oregon residents out of every 1,000 experiencing a divorce, according to statistics from the Center for Disease Control, it is important to understand some of the basic ways to protect retirement accounts and other assets during the process.
Any divorce regardless of the net worth of the parties can open up the potential to lose valuable income or assets if the proper processes are not followed. There are, however, some simple ways that you can help to prevent this from happening to you.
Leverage the QDRO whenever possible
There are some select financial transactions that require the use of what is known as the Qualified Domestic Relations Order. This is essentially a way of letting the federal and the state tax agencies know that a transaction is part of another process, such as a divorce and that the otherwise expected penalties and taxes are not to be assessed in the particular case.
While the QDRO is required at some times, it is not always. However, it is able to be utilized even when not mandated by law and is recommended in order to avoid any confusion down the road about the validity of a funds or asset transfer. Because asset and property division is common as part of a divorce settlement, using the QDRO can prevent unnecessary challenges.
Never divide retirement accounts in dollars
Retirement accounts and pension funds are frequently split or transferred as part of a divorce decree. During the negotiation and settlement process, each party must agree on who will receive what amounts or portions of each account. When this is done, it is always best to stipulate such divisions in terms of what percent of the account value each spouse should ultimately receive as opposed to identifying specific monetary figures.
The reason for this is simple. The value of such accounts by nature can fluctuate. If you stipulate any distributions in dollars, the true value of the account on the day that the transfer is to happen could leave someone with far less than planned. For example, an account currently worth $50,000 could end up being worth only $40,000.
If the original agreement stated that each person would receive $25,000 there would be problem at the end and it could mean that one person gets the full amount and the other gets only $15,000. If the agreement stated that each person would receive 50 percent, however, the final distribution would be equal and more in line with what was actually promised and agreed upon to begin with.
Working with a professional
Such nuances of divorce and property division show the importance of working with the right professional during such a process. If you are going through a divorce or anticipating one, it is recommended that you seek proper legal counsel to help you avoid unnecessary pitfalls and losses.