Disclaimer: This article does not constitute legal advice. If you have any questions about your individual situation it is best to seek the advice of an experienced legal professional.
Dividing retirement funds during divorce can be a complex process, especially for high net worth individuals. To ensure a proper division of retirement accounts, it’s recommended to seek the guidance of a qualified professional, such as a divorce mediator with financial expertise. Failing to follow the specific rules and processes can lead to costly consequences, including early withdrawal fees and the loss of tax benefits.
Understanding the Different Approaches: QDROs and Transfers Incident to Divorce
Divorcing couples often assume that all retirement accounts follow the same rules, but this is not the case. Different types of retirement accounts require separate processes. For instance, qualified plans like 401(k)s and 403(b)s necessitate a Qualified Domestic Relations Order (QDRO) for division, while IRAs undergo a process called a transfer incident to divorce.
High-Net-Worth Considerations and Non-Traditional Retirement Assets
High earners, key individuals, CEOs, and executives may have various retirement vehicles beyond traditional plans, including investments and annuities. Properly addressing the tax consequences of these assets in divorce requires the expertise of a skilled professional mediator who can assist with ensuring accurate documentation and submission.
Retirement Planning, Estate Planning, Children and Second Marriages
Retirement planning and estate planning often go hand in hand, particularly when there are children involved. Retirement planning can involve a calculation of who will be the beneficiary of retirement assets if the account holder passes away. High net worth individuals may have made an estate plan which names their children as beneficiaries, however there may be tax implications with certain retirement accounts, such as IRAs, which require beneficiaries to withdraw the assets within a ten year time, since the SECURE Act passed. A high net worth divorce with children should also consider the tax impact of marital assets on those who will inherit the assets. Second marriages are also something to consider when it comes to retirement accounts. Your ex spouse could still be named on a retirement account if you don’t intentionally change this. A new spouse may automatically become the beneficiary of your retirement assets, and usually marital status affords inheritance rights, which could cause contention if you have children who might worry the new spouse could inherit all the assets. You may need to discuss these possibilities in your divorce negotiations to avoid disagreement in the future.
At Santa Clara Mediators, we offer comprehensive divorce mediation services, assisting spouses throughout the entire divorce planning and transition process. With expertise in complex asset division, including retirement accounts, we provide tailored guidance to secure your future. Whether you have a mix of traditional and non-traditional retirement assets, our thorough analysis ensures informed decision-making. We accommodate in-person or remote mediation sessions, making it convenient for individuals residing internationally, out of state, or with multiple residences. Contact us to learn more about our West Coast Divorce Mediation services available at our offices San Diego, CA, Silicon Valley, and Berkeley, CA.