Among the numerous concerns divorcing couples have in Ohio, the division of retirement assets often features greatly. It’s important to know the proper methods for splitting retirement accounts to keep costs low and to prevent any unforeseen circumstances from occurring.
Bankrate.com lists some of the most common concerns related to the division of retirement accounts during a divorce. Taxes can be an issue when transferring retirement assets from one person to another, which is why it’s recommended that you utilize a qualified domestic relations order (QDRO). Depending on how assets are transferred, both you and your ex may be subject to increased taxes. In some cases, the owner of the account may even be penalized for early withdrawal.
In this case, a QDRO allows money to be transferred to another party within an existing account without incurring any additional fees. When creating a QDRO, it’s best to establish percentages of the assets being dispersed as opposed to actual dollar amounts. Failure to do so could lead to the account holder being left with nothing if the market fluctuates. While QDROs are typically used for workplace retirement accounts, they can also be applied to individual retirement accounts to prevent costly fees from accruing.
Beneficiary designations are also useful when dispersing retirement accounts. As the account holder, you must specify a beneficiary when an account becomes active, and this person typically receives the funds. While some states have laws in place that removes the beneficiary upon divorce, this is not always the case. Accordingly, it’s essential that you are aware of all beneficiaries on your financial accounts, and that you make changes as necessary to prevent assets being distributed incorrectly.