For a divorcing couple in New Hampshire, retirement accounts and annuities can be some of the hardest aspects of the property division process. These accounts have complex tax treatments that make it hard to work out how to manage dividing them.
Most 401(k) and IRA accounts are useful for workers because they allow for accumulation of savings with reduced taxes, making it easier to save enough money for retirement. However, in divorce, all property has to be divided between the two parties. It usually takes a special court order to manage the division of retirement accounts, and the rules for how to handle these accounts in divorce are complex and vary from plan to plan.
For example, one of the simple approaches is to liquidate the account and split the cash. But the timing of how long this takes and the large tax hit make this challenging. It is easier for the divorcing spouses to decide that one person gets the account and the other gets something else of similar value. However, this is still complex because there are different tax implications, and the question of the future growth of the account has to be included in the valuation of the other asset. Other options, like rolling a 401(k) over into an IRA, are limited, and only a few people can use them.
There is no easy way to manage retirement accounts with special tax treatments. They have the challenges of growth, taxation and plan rules no matter what approach the couple takes, so it comes down to the best way to minimize the damage, which may be different for every case.