You probably spent much of your working life with the goal of retirement. Now that you are facing divorce, you may be worried about your future finances. What will happen to your savings? Will you still be able to retire at a good age?
These are understandable concerns that many people in Colorado face. The later in life you divorce, the more assets — and savings — that you have and need to protect. This is especially true when it comes to your 401(k) account.
What if I was the only one who worked?
During a divorce, it is very tempting to try to pinpoint exactly which person was responsible for which debts, who earned more and who contributed to retirement savings. However, this is not really a useful endeavor as it usually will not matter; you will still have to divide your retirement savings.
Even if you were the only person working and contributing financially, the court will most likely consider your 401(k) marital property and will need to divide it during divorce. Since Colorado follows equitable distribution, you can expect to receive a fair split that might not necessarily reflect an exact 50/50 division.
Do we need to do anything special?
You already know that making early withdrawals from a 401(k) will result in shelling out for taxes and penalties, but what if you need to withdraw some of those savings to satisfy a divorce property settlement? You do not have to wait for retirement to split the money in the account.
With a Qualified Domestic Relations Order, you can safely make an early withdrawal without incurring any of those pesky penalties or tax fees. A judge must approve your QDRO and then send to your 401(k)’s administrator, who will either approve or deny the QDRO. It is essential that you wait for approval before moving money around.
You need help
When you use a QDRO to make a withdrawal from your 401(k), the IRS will not view the transaction as such. This makes creating the best possible QDRO a necessary part of avoiding taxes and preserving wealth for retirement.
Colorado family law is complicated, and you probably want to avoid certain potential financial consequences associated with divorce. In most situations, working alongside an experienced attorney might be extremely helpful, as he or she can better explain your options and protect your best interests throughout the divorce process.