During a divorce action, the parties’ assets and debts are valued and equitably divided either by the Court or by agreement. Two of the largest assets owned by many couples are the marital residence and retirement accounts.
One question that is often asked is how can we divide a retirement account without incurring tax penalties? Under typical circumstances, if the owner of a 401k account wishes to make a withdrawal, there are taxes and certain tax penalties that apply. However, in a divorce action, the answer is that a retirement account such as a 401k account can be divided without tax penalties if certain steps are taken.
In order to divide a 401k account pursuant to a divorce action, a qualified domestic relations order must be entered that specifies what portion, either a percentage or an amount, that the non-owner spouse receives. If the portion being transferred is rolled over to another retirement account such as an individual retirement account (IRA) then the transfer will not be taxed nor will a tax penalty be applied. However, if the non-owner spouse chooses to receive the funds immediately and not roll thefunds into a retirement account, then taxes and penalties may apply.
If you are looking for an attorney to help you with asset division, call (865) 685-4780 to schedule a case assessment with Melanie Hogg or another Held Law Firm attorney.