If you share everything from your housing expenses, bank accounts and credit cards with your spouse, one of the most important steps in a divorce will be separating your finances. The two of you will have to decide who keeps what physical property and how to split your financial resources – as well as your debts.
In Tennessee, the rule is to equitably or fairly divide your property, a standard that leaves much to an individual judge’s interpretation. Especially when it comes to assets worth tens or hundreds of thousands of dollars, you and your ex may have very different ideas about what is fair to do with them.
Most valuable joint property, including your home and your retirement account. When do you have to share your retirement savings with your ex in a Tennessee divorce?
A good portion of the account is likely subject to division
Although you may not relish this news, a retirement account solely in your name is not necessarily your separate property. Unless you protected the account with a premarital or postmarital agreement, at least the amount that you deposited during the marriage is subject to division in your divorce proceedings.
The closer you are to retirement, the bigger the impact needing to share those savings may have on your plan. Some people realize they will need to keep working for a few extra years to replenish their savings, while others have to alter their plans to reduce their retirement costs.
Couples preparing for a divorce in Tennessee can use collaborative negotiations with their spouse or divorce mediation as a means of protecting their retirement account so that they do not have to divide it. The good news is that there is a tool to protect your account if you must actually split it with your ex in your divorce.
What a QDRO can do for you
A Qualified Domestic Relations Order (QDRO) is a document drafted by one of the attorneys involved in a divorce and approved by the courts. The document’s instructions reflect the court’s order for the property division. When one of the spouses presents the QDRO to the professional or business managing the retirement, that professional will then create a second account in the recipient spouse’s name and transfer a specific percentage of the account balance to the newly created account.
When handled appropriately, a retirement account division involving a QDRO will not lead to taxes or penalties. Provided that both spouses leave the resources in their accounts, neither will have to worry about early withdrawal fees or other penalties because they divided the account. In a scenario where you need to split your actual retirement account, a QDRO will be a very useful and efficient tool.
Learning more about these solutions for different high-asset Tennessee divorces will help you understand what to expect during and after divorce.