Taxes to watch for during property division

| Dec 21, 2020 | Family Law |

Dividing up marital assets can take up a significant chunk of time during divorce. One reason why is that many people have strong emotional or financial attachments to their property. Unfortunately, this means that some couples make property division decisions based on how they feel in the here and now, overlooking other factors like taxes that might come into play in the future.

North Carolina workers spend much of their careers saving up for retirement, but these accounts are usually divided during divorce. Someone’s first instinct might be to just withdraw half the funds to give to his or her ex, but those funds would be taxed at 20%. A smarter approach is to get a qualified domestic relations order. With a QDRO, that same person could roll those funds over into his or her ex’s own 401(k) account without taking any tax hits.

The QDRO stipulates how much each spouse is to receive, so the wording is very important. In general, it is better to stipulate a percentage of the account rather than a dollar amount. This is because the value of the retirement account can increase between drafting the QDRO and actually transferring the funds. In this situation, the recipient would actually receive less than the intended percentage.

Financial security after divorce is important for starting a new life. Getting that financial security requires careful attention to details though, which can be hard for those who are not familiar with North Carolina family law. Rather than approaching things like property division on one’s own, it may be helpful to speak with a knowledgeable attorney first.