The process of getting divorced in Pennsylvania is inherently challenging from both an emotional and a financial standpoint. After all, untangling two people’s lives through property division can be difficult. One area of divorce that can be particular complicated is the splitting of assets — especially the division of an IRA plan.
A common mistake made when spouses are attempting to divide an IRA plan is to think that QDROs apply to IRAs. Instead of being used to divide an IRA, a qualified domestic relations order (QDRO) is useful for dividing a company retirement plan that is subject to the Employee Retirement Income Security Act of 1974 (ERISA). The court has to include particular details in an order for it to be considered a QDRO.
Another misconception is that there is an exception to the tax penalty of 10 percent for IRA distributions made as part of divorce proceedings. When funds in a company plan are split under a QDRO, an exception to this tax penalty exists. However, distributions from accounts that are properly divided following divorce are still subject to taxation.
If two spouses in Pennsylvania are able to work through their property division issues at the negotiation table, they may be able to split their retirement funds and other assets without further court intrusion. This may help to make the divorce process a lot less stressful and less costly compared with going to trial. However, sometimes going to trial is inevitable, in which case a judge will end up deciding for the couple how their assets will be split. An attorney in either situation can help to make sure that a fair and personally advantageous outcome is attained.
Source: financial-planning.com, “The wrong way to split an IRA in a divorce“, Ed Slott, Aug. 31, 2017