Divorce can be complicated, no matter how long you’ve been together. But when retirement accounts are involved, if they are not properly handled, they can make an already-stressful process, unnecessarily more stressful.
If you live in Oregon and are getting a divorce, Mediation Northwest can help you negotiate a fair split of your retirement accounts through divorce mediation.
Here are some of the most common mistakes we see couples make, and how you can avoid them with the help of our dedicated and experienced team.
1. Failing to make note of all retirement accounts.
While it may sound silly that a person would not know how many retirement accounts they have, many people fail to move their 401ks each time they start a new job.
This means that even though they may not be contributing to a past employer’s 401k plan, the investments are still active and continuing to grow.
Before mediating your divorce, make sure you and your spouse have a list of all of your retirement accounts (and assets) on hand.
2. Not completing a Qualified Domestic Relation Order until after a divorce.
Some retirement plans require a special order to split them. This order is called a Qualified Domestic Relations Order (QDRO), which we call a quadro. Some attorneys don’t engage the QDRO specialist until after the divorce is finalized.
Unfortunately, the truth is that failing to engage a QDRO specialist during the divorce process can lead to a situation where you have to re-negotiate after the divorce is final.
To avoid that, it’s best to engage the QDRO specialist during the divorce, which informs the parties of their specific plans requirements.
3. Using an employer-provided form or an online template as a QDRO.
You should never EVER have your employer provide you with forms for a QDRO – nor should you use the internet to find a QDRO. Employer and online forms take a one-size-fits-all approach, which doesn’t work for most situations.
Most importantly, these forms benefit the employer or the employee, and certainly do not benefit the non-employee spouse.
Every retirement plan has nuances that need to be addressed by a qualified Oregon divorce mediator. Here at Mediation Northwest, we’ve been negotiating retirement plans for over twenty years.
4. Splitting retirement accounts for a set amount rather than a percentage.
Since investments within a retirement account can fluctuate based on the market, you should agree to split retirement accounts for a percentage rather than a fixed amount (even if your accounts are frozen). Failure to do so could cause either party to miss out on receiving funds that would otherwise have been provided.
5. Not understanding how tax laws relate to retirement account distributions.
Generally speaking, retirement account withdrawals (i.e. cash in hand) made before retirement are marked as “early distributions” by the IRS, which means that these withdrawals will receive a 10% penalty tax in addition to ordinary income tax.
If the withdrawal is part of a divorce settlement, the 10% penalty tax does not apply (but income tax does). However, we can avoid all penalties and taxes by simply moving the funds into another retirement account.
6. Failing to hire a qualified Oregon divorce mediator.
One of the worst mistakes you can make when dividing retirement accounts in a divorce is not hiring an experienced Oregon divorce mediator. You only want to work with an attorney-mediator who has years of experience dividing retirement plans.
With the help of our divorce mediator here at Mediation Northwest, you’ll be able to work through these issues with your spouse in a way that provides fair resolutions for everyone.
Contact Mediation Northwest today
No matter how complex your assets are, our team works to help you and your spouse negotiate the terms of your divorce so that you can arrive at a mutually beneficial agreement.
Best of all, we handle the details of your entire estate – including your retirement accounts – so that your wishes are seamlessly carried out. Schedule your consultation with Mediation Northwest today.