Undergoing a divorce is quite painful emotionally, but there are practical aspects too that you have to manage, such as division of your or your spouse’s assets. Asset division laws are not straightforward and there can be cases where particular assets are given to one party, whereas in others they might be shared equally or in some other proportion between the two.
It is important to determine the rules that govern a divorce before the actual proceedings start so that you do not feel aggrieved after the separation.
There are a number of factors that govern division of assets. The court will look into aspects like the respective ages of husband and wife, liabilities, custody of children etc. for deciding the division of the assets. These assets could be your physical property as well as retirement funds, whether it is an IRA or a qualified plan. The division of retirement funds can be particularly complex.
IRA assets can be divided through a court order. The division is a non-taxable transaction and it can be seen as a transfer or a rollover depending on which institution the assets are held with. The receiving spouse should treat the property as his or her own from that moment, while the spouse giving up the assets will be free from any future liabilities that arise because of those assets. However, if such assets are given to a divorced spouse without a court order, the property will be treated as the giver’s property and added to his income for the year, hence becoming taxable.
On the other hand, for qualified plans, the laws require assets to be non-assignable and non-alienable. Hence, creditors will not have any rights to assets that fall under a qualified plan. This means that the beneficiary will not be burdened in future with any liabilities.
You should make sure that you are aware of the contributions made to IRAs or qualified plans. Also keep in mind that changes in the beneficiaries of the retirement plans should be properly reflected after a divorce or a re-marriage to prevent future hassles for your legal heirs when they try to claim those assets.
In any case, it is advisable to hire an attorney, who has a lot of experience in handling asset division during a divorce. Without proper advice, you could miss out on something important, which might come back to haunt you in future.