Avoiding Tax Consequences When Dividing Retirement Accounts

Dividing Retirement Accounts -Best Boston Divorce Lawyer

By: Christina Pashou, Esq.

Division of assets during divorce may also include the division of tax-sheltered retirement accounts (IRA’s, and 401K’s) and pensions. While many have concerns that the transfer of retirement funds pursuant to a divorce will result in taxes and penalties being incurred upon division of the accounts, if the account is divided properly that will not be the case. In divorce proceedings, certain retirement accounts may be divided by a tax-free “roll-over” of funds or via Qualified Domestic Relations Orders (QDRO). The term QDRO was created by federal law and applies to retirement plans created under ERISA, the Employee Retirement Income Security Act. ERISA is the federal law, which allows private employers and individuals to have retirement accounts, which have tax advantages to encourage the establishment of private retirement accounts.

This form of retirement division, pursuant to a divorce Judgment, permits retirement funds to be transferred to a spouse without either party incurring taxes or penalties due to the transfer of funds. This rollover/transfer of tax-sheltered funds allows one spouse to have the tax-sheltered funds transferred to his/her individual name and postpone payment of taxes on the funds until the funds are withdrawn from the tax-sheltered account.

In the case of a QDRO, after the Divorce Judgment outlining the division of funds is entered by the Court, the QDRO should be drafted by a mutually agreed upon attorney/actuary and may be submitted to the retirement plan’s Plan Administrator for preapproval, in order to ensure that the Order complies with federal law and the retirement plan’s own QDRO procedures.  Once the document has been pre-approved by the Plan Administrator, it must be signed by the parties and then submitted to the court for judicial signature.  This may be handled administratively by the Court and an additional court appearance is not required for the same.  After the QDRO has been signed by the Judge, the Court will return the signed Order to the parties so that it may be submitted to the Plan Administrator of the retirement plan for implementation.


Christina Pashou, Esq. -Best Boston Divorce Lawyer

Christina Pashou, Esq. -Best Boston Divorce Lawyer

Christina’s practice focuses on all aspects of family law, including divorce, paternity actions, child custody, spousal and child support, highly contested cases involving custody evaluations, and other related issues involving family law matters. Christina’s attention to detail, client-practical resolution outlook, and strategy is immediately devised to obtain results.Christina concentrates on preparation and analysis of family law cases, including financial analysis of income, assets, debt, business evaluation and tax consequences of asset division and support matters. Recognizing that each client’s needs and goals are different, Christina tailors her approach to the specific circumstances of her client’s needs.

To speak with a lawyer about divorce or other family law matter, contact Mavrides Law in Boston, Newton, or Quincy, MA. To schedule an initial consultation, call 617-723-9900 or contact the firm at info@mavrideslaw.com

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