Compassion, Confidence And Communication

How do you divide retirement accounts during divorce?

On Behalf of | Jan 31, 2025 | Divorce

Going through a divorce brings many emotional challenges. Dealing with retirement accounts can be especially difficult. After all, these accounts are more than just money. They represent years of careful planning and hard work for a secure future, making their division emotionally charged.

Identifying and dividing marital property in Minnesota

In Minnesota, marital property includes almost everything either spouse earned or acquired during the marriage. So, this includes your retirement contributions and investment growth.

While retirement accounts count as marital assets, there are some exceptions. Anything you contribute to the account before marriage may not be included when dividing assets during divorce.

Moreover, since Minnesota is an equitable division state, you and your spouse won’t necessarily get an even 50-50 split. Instead, judges consider various factors and give you and your spouse your fair share of the marital assets based on your needs and situation.

Splitting individual retirement accounts

If you have an individual retirement account (IRA), you can transfer money to your spouse without paying extra taxes during divorce. You do this with a transfer incident to divorce.

All you need is a transfer incident to divorce document specifying how much to transfer from your IRA. Your transfer incident needs to include specific language about your divorce decree. If done correctly, you can avoid taxes and early withdrawal penalties using direct transfer incidents.

Dividing 401(k)s and pension plans

Employer-sponsored retirement plans and 401(k)s are a little more complicated to split up. These require a specific court order called Qualified Domestic Relations Order (QDRO).

A QDRO tells the plan administrator how to pay benefits to your former spouse. Your plan administrator must approve the QDRO before implementing the division of benefits. If approved, you won’t have to pay fines for early withdrawal, but you’ll still need to pay taxes.

Avoid mistakes with legal help

You can get a transfer incident or QDRO yourself, but these legal documents can be complicated. Professional legal assistance can save you from costly mistakes and lengthy delays. An experienced divorce attorney can help you secure the documents and submit everything correctly.