On behalf of Stange Law Firm, PC posted in High Net Worth Divorce on Thursday, August 17, 2017.
If you and your spouse have decided that you are going to get divorced in Missouri, you have no doubt wondered how you will split your assets and your liabilities. For many people, a home and a retirement account tend to be the largest and most valuable assets they have. While it may seem that splitting a 401K account should be relatively simple, special care must be taken in order to avoid paying out high penalties and taxes that essentially eat up a lot of your hard-earned savings.
The United States Department of Labor explains that when a person removes money from a 401K account for reasons other than for retirement, they may be assessed early withdrawal penalties as well as income tax. You may be able to prevent these assessments by using a qualified domestic relations order. This allows your spouse to be named as an alternate payee on your account. Money can then be distributed directly to them, taking you out of the equation altogether.
When it comes to taxation for the spouse who receives money, that may also be avoided if that person chooses to put the money into another retirement account. The QDRO must be set up following very clear parameters and the administator of the plan must approve it before it is final.
This information is not intended to provide legal advice but is instead meant to give Missouri residents who need to split a 401K account during a divorce important information about how they may prevent unnecessary loss of assets to penalties and taxes.