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Divorce and splitting retirement funds

Maryland residents who go through a divorce and have to divide their retirement funds can avoid having to pay high taxes and penalties by not making certain mistakes. They should be aware that the different kinds of retirement accounts are governed by their own set of rules, particularly with regard to the division of the funds.

Individuals who are entitled to a share of their ex-spouse's workplace retirement plan will need to use a qualified domestic relations order to gain access to their portion of the funds. A QDRO will have to be used whether the retirement plan in question is a 401(k) plan or a conventional pension plan.

The contents of a QDRO will be based on the terms that are stipulated in the divorce decree. However, the order is a separate legal document. Individuals should have their QDRO reviewed by an attorney before the document is filed with the court. The attorney should make sure that the order reflects what is mentioned in the divorce agreement regarding the division of the retirement funds. For individuals who are entitled to the shares of more than one retirement account, they will have to submit a separate QDRO for each account.

The QDRO should specifically address how the 401(k) funds are to be handled, such as whether they are to be distributed directly to the ex-spouse or rolled over to an IRA. After the QDRO is filed with the court and before the funds are moved, the administrator of the plan will have to approve the order.

A divorce attorney may engage in negotiation to help clients resolve disputes regarding divorce legal issues, including property division. Litigation may also be used to obtain the desired settlement terms regarding the division of assets like retirement accounts, offshore accounts and real estate.

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