Anyone who is undergoing a divorce will worry first about what happens to the tangible assets. These include the funds that you find in a retirement account, whether it’s a 401(k) or a pension plan. There are different rules and conditions that a divorcing couple in Illinois must consider in order to split their assets fairly.
Dividing assets in a divorce
A couple that is undergoing a divorce or separation has to consider their retirement plans. They must divide the assets that they have accumulated together in a retirement plan. The assets may be given to the individual whose name it is under or be split among two or more individuals.
Each type of retirement plan has a different set of rules for the division of assets. Not following the rules and misappropriating the funds in a divorce will cost an excess of fees, taxes and legal hassles. During a divorce, no one should have to pay taxes when dividing the funds within a retirement account.
IRA vs. qualified plan division
An individual retirement account (IRA) undergoes a process known as a transfer incident. In contrast, a qualified plan, such as a 401(k), undergoes a process called a qualified domestic relations order. Deciding which procedure to undertake is necessary to prevent any legal complications.
Handling your retirement during a divorce
You could have an overload of taxes and legal fees if you are not careful with splitting your assets during a divorce. A divorce can bring delays, or even worse, an unequal division of assets within your retirement account. This requires that you pay close attention to the rules and choose the right type of division plan you need.