Going through a divorce is one of the most stressful and anxiety-producing events that a person can experience. It can cause stress mentally, emotionally and financially. The financial stress, though, is among the most readily reduced as the parties can gain piece of mind through preparation and understanding. People in Alabama can reduce the amount of financial stress associated with divorce by understanding how retirement assets are likely to be divided and by planning for the required changes.
First, there are differences in the legal treatment of different kinds of retirement assets. When individual retirement accounts, or IRAs, are divided, the division is referred to as a transfer incident to divorce. When other plans, such as 401(k)s, are divided, on the other hand, that usually requires a Qualified Domestic Relations Order, or QDRO. Correctly handling the division of different types of accounts can have significant tax implications.
Another common scenario with tax implications is a case where one spouse takes ownership of the the family home and the other spouse takes the retirement accounts. Even if these two different assets have the same value, they may be worth different amounts to the different parties because of the tax consequences of liquidation. Retirement accounts often carry penalties for early withdrawal, for example, and real property is subject to its own tax rules.
Couples and individuals who are considering or going through divorce in Alabama might want to schedule a meeting with an attorney. An attorney who has experience handling divorce cases might help by identifying and categorizing the couple’s assets or by negotiating the terms of property division with the other spouse. An attorney might also assist the client with the creation of a QDRO for submission to the court or argue on the client’s behalf during child custody hearings or other official divorce proceedings.