From start to finish, a divorce involves many difficult decisions. In marriages without dependent children, the most contentious issues often deal with financial concerns.
While dividing some assets such as savings accounts seems fairly straightforward, other assets involve complicated calculations.
Retirement accounts
Information from Kiplinger reveals that the rules for dividing 401(k) assets and retirement pensions differ depending on the account. In fairness, the courts should consider the combined value of these accounts and come up with a rationale to divide them equally. However, even in the best of worlds a number of issues complicate this goal:
- Taxation
- Legal paperwork
- Expenses
- Plan requirements
Dividing a pension or multiple pensions typically has more complexity than divvying up 401 k) assets. This has to do with the nature of pensions as an asset that pays out over an uncertain time frame. In some cases, financial experts need to calculate the estimated value of a pension. Even couples who divorce in their 20s or 30s need to address this situation.
Annuities
Kiplinger also covers the complications of dividing annuities after the dissolution of a marriage. Couples can negotiate how they want to split these financial instruments, but they must take into account rates of taxation, penalties and surrender fees. The IRS allows for some fee exceptions for divorcees.
Creative accounting methods can play a role when dividing annuities. For example, one spouse might keep the entire annuity while offering another asset of equal value to the other spouse.
Fairly negotiating finances in a divorce takes effort and knowledge. Legal assistance becomes essential when dealing with the different types of retirement assets.
