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The months before a New York divorce process is finalized are usually very difficult for separating couples. Besides the pain of marriage dissolution, there is also the need to protect their financial interests in the event that money and other marital assets need to be split based on various factors.
In many cases, sharing retirement funds often creates the biggest headaches. It is not always easy to determine what can be deemed fair division. Also, many people do not understand when retirement accounts should be considered marital property and when they should remain separate property.
Having to pay income taxes soon after dividing retirement accounts is yet another issue to contend with. This is why hiring a good divorce attorney is essential in such cases. They can also answer other questions like how long does it take to get 401k after divorce in NY?
Besides being knowledgeable about handling retirement benefits and the associated tax implications, a lawyer can also suggest alternative dispute resolution methods to smooth out the divorce process.
Divorce & Family Legal, located in Albany, New York, has been handling these types of cases for many years. Call now and set up a free consultation.
Is Splitting Retirement Accounts the Only Option?
When dealing with retirement plans, it is important to explore every option so that you reach a favorable outcome for both parties involved. Rather than simply rushing to withdraw funds, both the receiving spouse and the account holder need to consider the tax implications of such a decision.
Dividing retirement accounts is not the only solution, especially if one spouse can offset other assets to avoid having to pay taxes due to early withdrawal penalties. Before making any decision, it is important to consult a divorce lawyer or financial advisor about the best way to achieve equitable distribution of marital property.
How a 401(K) Is Divided in New York Divorce Proceedings
Dividing retirement accounts in a New York divorce requires approval from both parties, their lawyers, the plan administrator, and the judge overseeing the case. To ensure a smooth process that does not end up with one spouse taking more or less than they are entitled to, the following need to be understood:
Marital Property
Any assets obtained after marriage but before divorce are considered marital property and should be divided between the divorcing couples. However, everything else outside the period of marriage, including gifts and inheritance that were given specifically to one spouse, should be considered separate property.
These same rules apply when dividing retirement accounts. One spouse's contributions should only be divided if they were added to the retirement accounts while they were married to the receiving spouse.
Equitable Distribution
It is important to note that equitable distribution does not necessarily mean dividing assets equally. If one spouse has custody of the children, they may be awarded retirement benefits specifically for those expenses before the remaining funds are divided.
Qualified Domestic Relations Order (QDRO)
The best way to seek retirement benefits from a former partner after a divorce is through filing for a qualified domestic relations order (QDRO). This is a request that will be made to the judge after consulting with the other spouse, the divorce attorneys, and the plan administrator.
In some cases, a QDRO will take about six months to get approved, with the funds being available to the receiving spouse a few weeks after that.
However, the process can drag on for years, especially if an ex-spouse refuses to cooperate without a court order. As such, a QDRO should be filed as soon as possible, even before the divorce has been finalized.
Considerations for Negotiation and Settlement
Hiring lawyers to provide legal advice and financial professionals to assist with the equitable distribution of the marital portion of assets is the best way to handle a divorce in New York. It also opens the door for either party to negotiate and possibly reach a settlement faster than the court would have made a decision.
Splitting retirement benefits, such as a 401(K), comes with the added burden of having to pay taxes. It can also be a sore point for the spouse who was responsible for contributing to the retirement accounts. In such cases, some form of mediation from experienced attorneys may be the best way forward. They will be able to advise on what happens to 401k in divorce in NY.
Three Tips to Safeguarding Your Rights in a New York Divorce
Many divorce proceedings end up stalling because of failure to agree on equitable distribution of marital property or accusations of one spouse having a separate account they are hiding from their former partner.
To avoid having to wait years before a court order finally releases retirement benefits to the receiving spouse, the following tips can be helpful:
Understand How Marital Assets Are Divided in New York
Each state has its own interpretation of what constitutes a marital portion and what should be considered separate property. As such, it is important to understand what the law says in New York.
The spouse filing for a QDRO should also be sure that they are doing so at the court that has jurisdiction over the divorce proceedings.
Be Cooperative With a Former Spouse
One of the most important factors that determine how a 401(K) will be split and the time it will take for the funds to be available is how both parties are willing to cooperate.
If they can avoid the need to wait for a court order before carrying on with the split and be open about all the retirement benefits that are considered marital property, the process will be a very smooth and painless one.
Hire a Good Divorce Attorney
Finally, regardless of how amicable a divorce may seem, it is always the best option to hire a good divorce lawyer to provide legal advice and ensure that the 401(K) benefits are split fairly.
The New York divorce system can also be very complicated, especially when dealing with retirement accounts and the need to guarantee the financial well-being of any children from the marriage.
As such, a good law firm, such as Divorce & Family Legal, located in Albany, New York, can be the difference between receiving retirement benefits easily through a QDRO and waiting many years before being granted access to the 401(K) funds.