Any divorce has the potential for severe financial impact to one or both spouses. For people with a higher-than-average net worth, this potential can be even greater if appropriate care is not taken when determining the final divorce settlement.
Retirement accounts such as IRAs, pension funds, and more for Sugar Land area couples involved a high net worth divorce can have substantial-worth and any transfer of the funds from these types of accounts must be performed clearly in line with the laws governing such distributions.
Take advantage of the QRDO
Any type of funds distribution from a retirement type account must be reported to the IRS to ensure that it is legal and falls within the stated guidelines for retirement purposes. If a distribution does not qualify as a legitimate retirement transaction, the Internal Revenue Service can tax it at a very high rate. In addition, other penalties may also apply.
One exception to this can be for transactions that are pursuant to a divorce settlement. The best way to ensure that the IRS knows that your distribution is part of a dissolution proceeding is to utilize a Qualified Domestic Relations Order. This avoids the potential for questions surrounding your transaction and protects you against unnecessary losses.
Always stipulate ownership by percent
When you need to divide the value of retirement accounts with your spouse, it is important that your divorce agreement state any such division by the percent of ownership that each of you should ultimately receive. This is the only way to ensure that your ultimate distribution is proportionally equal to what you and your spouse originally agreed upon.
If one of the accounts that you need to divide has a current worth of $2 million and you and your spouse wish to split this equally, you could either state that in terms of 50 percent to each person or $1 million to each person. Imagine for example sake that you chose the latter. If, when the eventual funds transfer date arrives, your account is valued at $1.5 million, it is possible that one spouse will receive the stated $1 million while the other person receives only $500,000.
Stating the distribution in percentages would not be able to prevent market value losses but it would preserve the equitable balance originally intended by ensuring that each spouse receives the right proportion of the account.
Take heed to process transactions at the right time
Even if the distribution of funds from a retirement account is stipulated by a divorce decree, that does not mean the actual transfer of funds can take place at any time. There are very clear guidelines indicating when this is allowed in order to avoid taxes and penalties. Make sure that your proceedings are managed properly to prevent such problems.
Legal counsel is important
Protecting your current and future assets and income is vital to your livelihood. Therefore, it is important that you work closely with an attorney who is well-versed in managing high net worth divorces so that you know your interests are protected.