In Pennsylvania, courts use an equitable distribution model to determine how to divide a couple’s assets during divorce. This model helps determine how to split a couple’s assets, including retirement accounts.
When negotiating a divorce settlement, the parties may consider how taxes can impact the value of the assets. For example, some retirement accounts are taxed at the time that a contribution is made while others are taxed at the time a withdrawal is made. Generally, the only time that a withdrawal that is not taxed can be taken out is when the person has retired and meets specific requirements. By equalizing the accounts and splitting them based on after-tax value, the spouses can split assets in a more equal manner.
Another consideration regarding retirement accounts during the divorce negotiations is the spouses’ respective tax brackets. When they are filing single, one of the spouses may be in a higher tax bracket than the other. This classification has a direct impact on the net value of the account. For example, if a couple is splitting a retirement account with an after-tax value of $200,000 and the spouses are taxed at different tax rates, they may net different amounts. One spouse may receive an equivalent after-tax value of $110,000 while the other receives a value of $90,000. After this transaction, each spouse would then take the required minimum distribution based on the share each party has in the retirement account.
Individuals going through divorce may decide to contact a divorce lawyer. An attorney may be able to provide advice about splitting marital assets that is based on the circumstances of the case.