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Division of retirement assets will impact golden years

Getting divorced is never an easy process. This may be true no matter how amicable a marital split-up may seem starting out. After all, the process of divorce involves the untangling of two individuals' lives, both emotionally and financially, which can be messy.

For many California couples, division of property is one of the biggest areas of contention during a divorce. If you are nearing retirement, the splitting of retirement assets may be especially concerning, as how you divide them can have an immediate impact on your ability to retire.

A QDRO can help

During the divorce process, the law considers a retirement fund as marital property. Therefore, you might have to share the fund with your future ex. In this situation, obtaining a qualified domestic relations order, or QDRO, can be beneficial. This document is a court order that details the correct procedure for distributing retirement benefits down the road.

With a QDRO, the administrator of your benefits plan can move forward with distributions as though you are still in a marriage with your ex, making sure that both parties receive their rightful benefits. The QDRO can also help resolve issues that might crop up if either you or our ex remarry. After all, both current spouses and ex-spouses get proportionate shares of the distributions.

What happens to your IRA?

After you get divorced, your IRA will generally be your property. However, if you contributed to your IRA from your income while you were married, then your ex-spouse is entitled to a percentage of the IRA assets.

A divorce decree can easily transfer IRA assets between spouses tax-free. However, if you are on the receiving end, the government may assess a federal income tax of 20 percent if you fail to ask the trustee of your IRA to roll the funds transferred to you into your IRA.

The divorce process

If you and your spouse can find common ground, you may be able to resolve issues related to the distribution of retirement assets without going to court. A lawyer may be able to help you reach a settlement of your divorce through divorce mediation or collaborative divorce, two alternatives to traditional litigation. However, if you cannot resolve these issues on your own, a judge in California will have to make the final decision regarding your retirement assets for you and your future ex.

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