Splitting assets in a Florida divorce is a complex process, and it is even more so when there are significant assets to divide, such as IRAs, 401(k)s and annuities. On the surface, the issue of dividing assets seems simple — just cut everything in half.
However, there are some serious downsides to taking such a simplistic approach to divorce. For example, you may pay additional taxes and other penalties for cashing out a retirement fund early. Some administrators will not allow an early division of assets. If that is the case, you may be able to get a qualified domestic relations order (QDRO). A QDRO gives a person a portion of the retirement benefits that his or her former spouse earned.
Your best chance of getting what you need from your divorce settlement is to reach an amicable agreement with your spouse. Your divorce attorney can help you negotiate your terms, so you may not even need to see your spouse in person to reach a fair settlement. Here are a few ways to split common assets, like IRAs, 401(k)s, and annuities.
An IRA is, perhaps, the simplest asset to divide. However, it is subject to property state rules, so Florida state property rules will govern Florida assets. Other than that, splitting an IRA is based on when the IRA was opened. Some other considerations include:
- An IRA opened during the marriage is considered marital property.
- The contributions made during a marriage to a pre-existing IRA may be considered a marital asset.
- An inherited IRA is most likely to be considered separate property.
The division of IRA assets may not require a QDRO, but it will require a divorce decree.
Dividing 401(k)s is fairly complex because of the unknowable value of future potential growth of the asset, and there may be additional taxes or other penalties for early liquidation of 401(k) accounts. There are four potential ways to divide 401(k) accounts: straight division, exchange the 401(k) for an asset of equal value, liquidate to pay one spouse or roll it into an IRA.
Annuities are also complex to divide. The main issues are penalties, fees and taxes. However, the IRS may make exceptions in the case of divorce.
If you are not sure how to start the property division process in a divorce, you can discuss the possible tax consequences and other penalties with your CPA, financial planner or divorce attorney. If you need a QDRO, make sure to prepare it in time for your divorce proceedings, and share all information you can with your divorce attorney. The more information you have, the better your lawyer will be able to assist you.