Virginia Estate Planning Attorney Comments on Division of Retirement Accounts For Divorcing Couples
Fairfax, VA (Law Firm Newswire) October 26, 2016 – Couples approaching retirement age and contemplating divorce, may confront problems regarding ways in which to divide their retirement accounts. The divorce rate is skyrocketing for baby boomers. According to a report by the National Center for Family and Marriage Research, between 1990 and 1994, the divorce rate among adults over age 50 doubled. And the rate tripled for those over age 65 in the same time frame.
Recently, a survey conducted by the American Academy of Matrimonial Lawyers found that retirement accounts and pensions were second only to alimony as the assets over which couples argued the most. When couples acquire retirement benefits while they are married, such benefits are usually divided equally. The couple has retirement accounts that they originally planned to use in one household, and now those funds must be used to benefit two households. Some people say they have saved every month, and do not understand why they must share their savings with their spouse. However, in most cases, retirement accounts are considered marital property. Therefore, at the end of a marriage, it is recommended that divorcing spouses check or modify the beneficiary of those accounts.
Prominent Vienna, Virginia estate planning attorney Lisa McDevitt says, “Couples who are contemplating divorce should consider dividing retirement accounts in a way that is fair and equitable, and not underestimate the potential value of such assets.”
The majority of retirement accounts, such as a pension, 401(k) or IRA are taxed when funds are withdrawn. However, a Roth 401(k) or Roth IRA is taxed upon a person’s contribution to the account after which it is tax-free when the accountholder makes withdrawals from the account provided specific requirements are met.
Divorcing spouses must consider the after-tax value of the retirement accounts. When changing from married filing jointly to filing as single, in cases of a high earner and a low earner, there will be an increase or decrease in the value of the IRA or 401(k) for each spouse depending on their tax bracket. If a couple is splitting a 401(k) or IRA, and they are in different tax brackets, adjustments can be made to make certain that they each receive an amount that is of equal after-tax value.
While dividing a retirement account is fairer than exchanging one account for another, it is also more equitable to exchange retirement accounts for other assets. While many women choose assets with sentimental value, such as the home, that may not be in their best interest. It can be costly to maintain a family home, which can deplete funds instead of rise in value, as a retirement account can. Additionally, the dependent spouse can easily underestimate the precise value of a 401(k). It can be a significant asset if it has reached its maximum value over a spouse’s entire career.Learn more at http://www.mcdevittlaw.net