If you’re facing legal separation or divorce, you’ll probably be required to share the assets in your retirement plan with your former spouse. Whether you’re receiving the funds or giving them up, it’s important to understand the rules associated with asset division in your divorce as a Wisconsin resident.
Retirement plans and taxes
It is crucial to handle retirement assets properly in a divorce. This ensures that the correct party is paying all the taxes that apply to the retirement plan whether it’s an IRA or a qualified plan.
How to transfer funds
Even if you and your spouse will split the assets in your qualified plans and IRA in the same way, there are separate legal terms that describe each division. An IRA is divided between spouses in a process called “transfer incident to divorce.” However, other plans such as 401(k)s and 403(b)s are divided with a qualified domestic relations order, or QDRO, once a couple has filed for divorce.
Some courts will label both types of asset divisions as QDROs. However, you and your spouse should determine which category your retirement assets fall into as soon as possible to avoid any unnecessary holdups in the divorce proceedings. Be sure to submit all required paperwork in a timely manner. If you file your documents during the divorce proceedings, you won’t be required to pay taxes on the immediate division of your accounts.
It’s important to speak with an experienced divorce attorney to ensure that you have the correct paperwork and determine the best ways to divide your assets during your divorce. Working with a legal professional may help minimize the taxes and fees you owe to divide such assets.
