Whenever a couple divorces in Iowa, all of their assets must be split between the two spouses. That division includes retirement accounts. However, splitting those accounts is more complicated and has different legal considerations than other marital property. Here is what you need to consider.
Retirement accounts are valued differently
Retirement accounts are valued differently than most other assets in divorce because of the way these accounts are taxed. For example, money in an ira account is considered less valuable than the same amount of money in a regular savings account because the IRA funds will be taxed upon withdrawal. Both traditional and Roth IRAs require a document called a transfer incident to divorce to split such accounts. If the receiving spouse decides to take a distribution from one of the accounts, only that person will pay income taxes on the amount withdrawn unless an exception is applied.
Spouses must also obtain a Qualified Domestic Relations Order (QDRO) to split various retirement accounts, including IRAs. The distributions are based on a budget’s order and must comply with the terms of each qualified account. In some cases, early withdrawal of retirement funds may not apply if a receiving spouse takes a withdrawal.
After splitting the accounts, both spouses should remember to change beneficiaries. A common mistake involves leaving an ex-spouse as the primary beneficiary on a retirement account.
Protecting your interests in a divorce agreement
Division of other assets, including business interests, can also complicate a divorce agreement. Determining an equitable divorce agreement often doesn’t mean splitting the assets in half, as many factors require consideration. Divorcing spouses should also look out for their best interests and take their time before reaching an agreement. Because of the complicated nature of divorce agreements, some couples may benefit from hiring an accountant specializing in divorce valuations to ensure they receive the best settlement.
Additional considerations include updating estate plans after the divorce is finalized. Wills, trusts and other instruments will require modifications to reflect your new status and ensure that your assets go to the right individuals after your passing.