When a couple in Virginia gets a divorce, they might have a retirement account they need to divide. If it is an IRA, there may be certain regulations that need to be followed to prevent having to pay taxes and penalties. A person's distribution must be rolled into another IRA.
Dividing a 401(k) or another pension plan is a more complex process. It is necessary to get a court order known as a qualified domestic relations order to divide this without incurring taxes and penalties. This must be prepared carefully, and it must have the same intent as the divorce decree. The QDRO must be approved by the plan administrator.
If a person is planning to roll the 401(k) distribution into an IRA, it must say this in the QDRO. A person could also take a direct distribution although it will be necessary to pay regular taxes on this.
A spouse who expects to receive part of a retirement account should not agree to be removed as a beneficiary until after the divorce is final. This protects that spouse in case the owner of the account dies before the divorce can be finalized. Furthermore, both the QDRO and the divorce decree should state the amount each person will receive in percentages instead of dollars in case the account's value changes.
There may be other assets and debts the couple needs to divide besides the retirement account. Attorneys can help people plan how they will protect themselves if they go through with the divorce. Divorce often results in a lower standard of living, and keeping a portion of an asset such as a retirement account can be an important part of a person's long-term financial security.