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Division of retirement funds deserves special attention

Keeping proper records related to retirement funds and beneficiaries is important because if you are in your late 40s, you may already have several different retirement plans of which you must keep track. If you are going through a divorce, there might be significant amounts at stake, and your financial future could be in jeopardy if the division of retirement accounts is improperly handled.

How to best avoid any potential obstacles?

You need not navigate this complicated process on your own. If you are in the vicinity of Fort Worth, Texas, you can rely on the experience of a skilled divorce attorney who has access to additional resources, such as financial and tax advisors, to make sure you receive your share of your own and your spouse's retirement accounts without passing a larger portion than necessary to the taxman.

Taxation

The first potential pitfall when dividing retirement accounts is the tax implications. If the entire interest in your retirement account must go to your former spouse, you can simply change the name of the account. To transfer a portion, it must go into a new IRA account or an existing account already in his or her name. If your property division agreement or divorce decree orders this transfer, it will not be taxable -- if you handle the transfer correctly.

Direct transfer

If you use a direct transfer, it is likely that neither you nor your former spouse will incur taxes. However, this is only true if the transfer follows a divorce decree order, written agreement or separate maintenance incident to the divorce. A professional tax advisor can confirm the appropriate procedures with the custodian institution of the IRA. The timing of such a transfer can be crucial because if you are not yet 59-and-a-half years old, and the transfer takes place before finalization of the divorce, a 10 percent penalty for early withdrawal may come into effect.

QDROs

A qualified domestic relations order (QDRO) is another manner to distribute retirement funds. A QDRO allows the legal division of a retirement account to a different owner while avoiding penalties or taxes typically associated with such transfers. Dividing retirement assets in employment plans such as traditional pension plans, 403(b) or 401(k) plans is usually handled with a QDRO. Although you can transfer a Roth IRA without a QDRO, it still may prove to be your most adequate option.

Stipulate percentage

When you stipulate the way in which to divide the retirement funds, it may be advisable to do it in percentages rather than amounts. If the market crashes and you have a $100,000 retirement account of which you stated you and your ex should each get $50,000, your former spouse might still get $50,000, and you could then end up receiving significantly less -- or nothing.

Fortunately, your seasoned Texas divorce attorney can protect your interests and provide skilled guidance throughout the process. Along with guiding you through the division of retirement funds, he or she can assist you will any other divorce-related issues.

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