The details that emerge when getting a divorce may sometimes feel overwhelming as it seems that so many decisions may result in significant tax implications or other long-term financial ramifications.
When it comes to a property division settlement and the need to split your 401K account with your spouse, you will want to understand the potential outcomes and how to protect yourself against unnecessary losses.
Non-retirement distributions from your 401K
If you choose to take money from your employer-sponsored retirement account prior to reaching the age of retirement, you may need to pay early withdrawal penalties. These penalties stand to take away a significant amount of your hard-earned retirement savings, only further reducing what you will have left for yourself. This may happen even if your withdrawal happens per the agreement you make with your spouse via a divorce decree.
How the QDRO works
The United States Department of Labor indicates that a qualified domestic relations order may adjunct your divorce decree to allow distributions from your 401K account to be paid directly to your former spouse per your divorce agreement. This happens by establishing your former spouse as an authorized payee on your 401K account.
The QDRO prevents the need for you or your former spouse to pay early withdrawal penalties. Taxes become the responsibility of the person who receives the money from the 401K account.
This information is not intended to provide legal advice but is instead meant to give residents in Florida an overview of what a qualified domestic relations order is, when they may need one and how it may help them.