Saving for retirement is an action that many New York residents feel is responsible. Over the years, individuals may be able to accrue considerable amounts from employee retirement funds and other accounts. However, these funds could be affected during divorce, and individuals may benefit from learning how the division of retirement funds could impact them.
First, individuals may wish to determine the types of accounts they have. If they have funds covered by the Employee Retirement Income Security Act, they may face favorable tax breaks, generally speaking. However, if those funds are affected by divorce, taxes could come into play. If funds are withdrawn early, they could be taxed and incur early withdrawal penalties. Though, if individuals take the proper steps, they may be able to avoid those penalties.
Filing a domestic relations order could allow for the division of retirement funds during divorce proceedings to be untaxed. However, the order must be approved first. Such an order is necessary for accounts qualified under the Employee Retirement Income Security Act, but they are not required for non-qualified plan, such as supplemental pension plans and stock ownership plans.
As with many financial and divorce matters, dividing retirement funds could become complex. Therefore, New York residents may wish to ensure that they are taking the proper steps in ensuring that their accounts are being divided in the correct manner. If they would like to find out more on how domestic relations orders and other similar documents may be used, they may find consulting with an experienced family law attorney helpful to their cases.
Source: wealthmanagement.com, "Avoid Five Costly Mistakes in Dividing Retirement Assets During Divorce", Connie H. Buffington, Feb. 1, 2016