If you’re going through or planning on a divorce, it’s important to ensure the separation or sharing of all assets involved is handled smoothly and fairly, and when the time comes to divide the retirement fund, this is especially true.

In the later years, income and opportunities may be harder to come by, and as such, it’s prudent to secure as much income (including retirement funds) as you can. Retirement is relatively simple in a healthy marriage, but a divorce obviously tends to complicate things, particularly things that are changing and evolving (like a 401k, for example). So how do you handle that?

Ways to Divide the Retirement Fund

When you tackle the division of retirement funds is determined in part by how you choose to do so. It goes without saying that it’s a good idea to have a plan in place ‘just in case’ well ahead of time; this certainly makes the legal work easier, and when combined with other details also worked out in advance, it can spare you and your not-so-happily-ever-after spouse time and money by dodging legal battles.

One way to settle in advance is the present-day valuation buy-out. This essentially is a settlement enacted immediately, granting some compensation equal to a portion of your partner’s retirement funds at their current worth. The obvious advantage here is the immediate payoff.

Timing is Everything

The general disadvantage to the present-day valuation is just that; assets that may be worth more in the future only provide what they are currently worth, so it can pay (literally, mind you) to make other arrangements. It is possible, for example, at the time of divorce, to finalize a plan to divide assets. When to split also depends on state; Some states work based on the date of the divorce itself, which typically comes before everything is completely finalized- other states considered this complete finalization as the date of the split. Depending on the divorce process, this could be a rather large gap.

Whenever you decide to divide the retirement fund, be sure you weigh all of your options carefully. It’s possible to leave money on the table, or end up falling prey to various tax issues based on your method of division and the timing of such. Having a plan in advance is typically a good strategy.

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