We get it – dealing with the more complex financial aspects of a divorce can be very overwhelming. Trying to figure out how a particular financial decision affects your future security, or what the tax implications are of choosing to keep or release a particular financial asset aren’t going to be the most exciting subjects you handle all day. But when you stop and think about it, these choices can have a huge impact on your life, both now and in the future. So if you’re considering a divorce, and you live in the mid-Michigan area, we’d like to give you a little advice on what to do with your 401k, Annuities, and retirement accounts.

A quick look at the difference between a 401k, an IRAs, and Annuities:

IRA: An IRA (Individual retirement account) is an account set up at a financial institution that allows you to save for your retirement with tax-free growth, or on a tax-deferred basis. There are three main types of IRAs, namely Traditional, Roth and Rollover IRAs, and each one offers different advantages.

401k: A 401k is a tax-advantaged retirement account that many employers offer to their employees, who usually make contributions to their accounts through automatic payroll withholding. In many cases, these contributions are matched in part or in full by the employers, and the money is not taxed until it’s withdrawn.

Annuity: An Annuity is a contract between you and an insurance company where you make a lump-sum payment, or series of payments, and in return, you receive regular disbursements. This is usually done to ensure enough income during your retirement years.

How to divide your 401k or pension plan when you get divorced:

Many couples living in the Lansing and St. Johns areas ask us what’s the best way to divide up their 401k accounts and pension plans when they get divorced. After all, no one wants to be left high and dry in the golden years of their life. But the process can seem a bit overwhelming, as you’ll need a Qualified Domestic Relations Order (QDRO) from the court in order to divide up these accounts. Also, it’s important to remember that here in Michigan, your spouse has a legal right to at least a portion (and in some cases all) of your pension plan. So what are your best options?

There are several ways you can handle this particular asset in a divorce

• One spouse gets to keep the 401k, while the other spouse gets an asset of equal value;
• The 401k gets divided between the two divorcing spouses;
• The 401k is liquidated and used to pay off one of the spouses (please note that not everyone will qualify for this approach, and it may come with potential legal penalties)
• The 401k is rolled into an IRA account, which is an option only available to people who are over the age of 59 ½, or those who’ve left their employer.

What’s the best choice for you when it comes to your 401k and divorce?

Obviously, there’s no one-size-fits-all solution that works best for everyone. Many factors will influence what’s best in your individual case. But there are a few tips that can make the process smoother for everyone, regardless of what your particular situation is. For example:

1. Discuss the potential tax consequences with your accountant and your financial planner,
2. Ask your plan administrator for help and/or advise when it comes to the QDRO, so that nothing important gets overlooked or forgotten. Here at The Kronzek Firm, we  will assist our clients in properly having a separate domestic relations orders prepared by conforms to both state and federal law
3. Make sure your divorce lawyer has all the information, both about your pension and 401k accounts, and the QDRO
4. Make sure you factor your spouse’s benefits into your divorce negotiations
5. Be sure the QDRO is ready in time for your divorce. And be sure to sign the necessary documents with the separation agreement and before the divorce decree

Having the right divorce attorney can make all the difference to your future!

Join us next time for a look at how best to divide up your IRA and your Annuities during a divorce. Until then, if you live in the Grand Ledge, Dewitt or Okemos areas, call The Kronzek Firm at 517 886 1000 to ensure you have top of the line representation during your divorce. Our financially-savvy family law attorneys have spent decades helping people from all walks of life protect their investments and plan for their futures during divorce. We understand what’s on the line for you, and how best to help you reach an agreement that works for you, both now and in your future.