People work hard to accumulate retirement benefits to sustain their desired lifestyle in the future. Divorce can threaten to upend retirement planning and obliterate its value. Preserving retirement savings is critical to people’s ability to reestablish their independence and prepare for the future.
When people know some of the strategies for managing their portion of shared retirement benefits, they can avoid costly mistakes.
Rights of plan participants
The process for splitting retirement benefits will vary depending on the type of plan a person has such as a pension, 401(k) or IRA. Some other factors that may influence benefits distribution include the following:
- Length of marriage
- Employee-sponsored vs. personal plans
- Requirements to pay alimony or child support
Many divorcees feel concern about getting their share of retirement benefits. According to U.S. News, divorcees should read the rules and regulations for their retirement benefits plans. They can use plan information as leverage to negotiate a fair outcome and verify the accuracy of their payout.
Using a QDRO
A Qualified Domestic Relations Order or QDRO is a formal document that outlines each person’s entitled benefits in a divorce settlement. According to the Internal Revenue Service, many plan administrators require an ex-spouse to file a QDRO to legally access a portion of the benefits belonging to the named plan participant.
People should never spend their retirement savings during divorce. Anything they acquire should go directly into a new account and remain protected. People who spend their payout often have to pay considerable fees for withdrawing their funds early and their irrational actions could compromise their financial security when retirement arrives.