For some couples in Ohio who are getting a divorce, their retirement accounts might be the most valuable assets they own. They may need to divide these assets during the divorce, but it is important to ensure the proper documents are in place so that it is not necessary to pay taxes or penalties. People should also take precautions, such as not approving a change in beneficiaries for a 401(k), until the divorce is final. Otherwise, if the spouse who owns the retirement account dies, the other person may not receive anything.
For a workplace pension plan or 401(k), a document called a qualified domestic relations order is needed. This document allows these types of retirement accounts to be divided without incurring taxes or penalties. However, a QDRO is a complex document that must be prepared correctly. It should be consistent with the divorce agreement and specify how the account will be divided in percentages instead of dollar amounts in case the value of the account changes. The document should also specify whether the distribution will be rolled into an IRA or dispersed directly. In the latter case, there will be a tax but no penalty.
A QDRO is not needed in order to split an IRA. However, couples should make sure the division is done correctly to avoid additional expenses.
Dividing property in a divorce can be a complex process, and how it proceeds will depend, in part, on whether each spouse is acting in good faith and making an effort to be cooperative. For example, one issue that may arise in a divorce is that a spouse might try to hide assets. However, if both people are being reasonably cooperative, they might prefer negotiating an agreement regarding property division with their attorneys over litigation since negotiation gives them more control over the outcome.