Maintaining retirement funds through divorce

Colorado couples who are considering divorce should get the facts about how they can prevent unnecessary retirement fund losses during the process.

Any person in Colorado who has faced the unfortunate reality of a divorce understands how far-reaching losses can be. Every aspect of a life is touched, including in the financial realm. It is common today that retirement assets are split as part of property division settlements in divorces but there are still important and easy ways that people can prevent even further loss of these funds.

What can divorcing persons do?

The risk to retirement assets during divorces is the assessment of high taxes and early withdrawal penalties if splits and transfers are not processed properly. Commonly an account that is to be split first has funds disbursed to both parties, leaving each person with options for reinvesting.

When monies are not reinvested into other qualifying retirement accounts, they can be subject to early withdrawal penalties and taxes. As explained in a Forbes article, one woman in California learned this the hard way when she chose to keep such money from her prior husband's 401k instead of putting it into another fund. Today she has an unpaid tax bill as a result.

Even when funds are properly reinvested, tax entities may not be able to clearly identify the processing as related to a divorce. If this happens, those taxes and fees could still be assessed. The Tampa Bay Times and Fox Business recommend the use of a Qualified Domestic Relations Order as a means to avoiding this pitfall. It is not required but can be highly useful to people when getting divorced as it tells all entities that certain transactions are related to the divorce.

Another important element to note is the timing that is allowed in which to process any retirement fund disbursement or reinvestment. Heeding these specified dates goes a long way toward preventing further financial loss.

Special care for older persons

Nobody wants to lose their hard-earned retirement savings but the closer people are to retirement ages when getting divorced, the more critical this issue becomes. With fewer years available to make up losses, saving as much as possible is a must. Forbes notes that more and more people in the country are getting divorced in their 50s or later as indicated by data from the National Center for Family and Marriage Research.

Proper action matters

The best way to ensure all funds are fully protected is to work with a qualified divorce attorney. Having someone who knows the law and the intricacies involved can literally save thousands of dollars from being lost unnecessarily.

Keywords: divorce, retirement, assets