Divorce is never easy on you emotionally and also comes with financial challenges. Informed decisions have to be made concerning the division of assets that you and your spouse have gathered during your marriage.
Retirement savings are one of the most valuable assets that people have. Therefore, they can be a crucial issue during divorce proceedings. Distributing the retirement assets might be one of the most challenging part of divorce. They may be subjected to tax implications and are easily mishandled due to this reason. Retirement benefits fall under community property and are subject to division during a divorce in Washington.
The parties usually will agree on keeping their benefits for themselves and using other assets, like home equity, to balance property division. Typically, during the divorce proceedings, every asset is not distributed. Instead, piles are made, and they are kept reasonably even. For example, assets A and B can go to one partner, C, and D to another, and asset E is divided for even distribution.
QDRO (Qualified Domestic Relations Order)
If only one of the parties has a retirement plan, then the plan is divided to give both parties the benefit of having some income for themselves after retirement. In this case, mostly a QDRO (Qualified Domestic Relations Order) is used. The QDRO splits the plan of retirement in half, which gives a part to each of the spouses under their name. That means a spouse may have a retirement plan with an industry where they have never worked. The QDRO also allows you to avoid the tax implications of transferring retirement funds on your own.
Retirement Payout
Retirement payout is another complicated area in a divorce. Most of the states consider the funds added to a retirement account as marital property. That means both of you have the right to them. If you enter the marriage while having funds already in your retirement account, this is your separate property. Generally, at the time of divorce, the assets that come under marital property or the assets contributed when you were married.
Defined Contribution Plans and Defined Benefit Plan
If a defined contribution plan such as a 401(k) plan covers your spouse, then the payment timing will depend on the plan. A few plans will make a lump sum payout immediately, while others make payments periodically or pay the lump sum later.
If a defined benefit plan such as the company’s pension plan covers your spouse, you will probably get the monthly payments that begin at your retirement age.
It is essential to know the amount that you will get from the retirement distribution to plan a financial life after divorce. The amount, along with other income sources or retirement savings that you have, will determine the retirement budget as well as the amount of work required to get on with your life after getting a divorce.
