When you and your ex decide that it’s time to make your separation official, you’ll likely have a lot of questions about the divorce process in Colorado. One of the most common is how your retirement account will be split during the divorce proceedings.
The type of plan determines how it’s split
During the divorce process, you’ll need to reveal to the court the type of retirement account that you have. Depending on the specific type of plan that you have, the court will proceed to split it in the manner that is correct for the account type. For IRA plans, the court will use a process known as a transfer incident to divorce. For 401(k) plans, the court will issue a split under a qualified domestic relations order.
When the court issues these orders, they’re done on a tax-free basis. The amount of money is also protected against any seizure or attachment by creditors. However, this only holds true under these orders when they are properly filed with the holder of the retirement account. If the owner of the retirement account does not submit the proper paperwork, the transfer may be classified differently, and they may be responsible for taxes and even an early withdrawal penalty.
Take time to update your beneficiary
When you send in the order to split up your retirement account, regardless of what order it is, it’s a good idea to take a look at your beneficiary. Most married individuals will recognize their spouse as their sole beneficiary of their retirement account in the event of their death. After undergoing a divorce, it’s likely that you’ll want to update a beneficiary to a different person like a child or another family member.
Undergoing a divorce comes along with a lot of questions. By taking the time to do your research and consult a knowledgeable attorney, you may receive helpful guidance and answers to your questions. When you understand what’s going to happen throughout the divorce process, it makes it less daunting to deal with.