How Should CRNAs Facing Divorce Split Retirement Accounts?

While I am sure it will come as no surprise, the CRNA profession is one of the most stressful career paths you can choose. According to the Occupational Information Network, a US Department of Labor job database, on a scale from 1 (least stressful) to 100 (most stressful), CRNA’s stress tolerance level is a whopping 98! [1]  (Lucky for me, financial planners only experience a 77 stress tolerance level.) Unfortunately, this high level of on-the-job pressure can lead to discord at home and subsequently higher than average divorce rates for CRNAs. With CRNA divorce rates exceeding 30%[2], it’s not unlikely that you, or another CRNA you know, may be faced with the question, “how do we divide our assets after we split up?”

How Not to Split Your Retirement Account

You and your spouse have decided to move forward with your divorce. One of the biggest questions now is how to split your retirement accounts? Since many CRNAs are the family breadwinners, it’s also not uncommon for them to hold the lion’s share of retirement assets. Did you know that just because you’re going through a divorce, according to the IRS, that’s no excuse to take a tax-free distribution from your retirement account – even if it’s going to your former spouse? If you take a distribution from your retirement account, even if its part of the divorce decree, make sure you’re prepared to pay taxes on the entire withdrawal, plus a 10% penalty if you’re under 59 ½.

Try This Instead

So your divorce agreement states that your ex-spouse is entitled to all or a portion of your retirement account. What do you do to ensure no one gets hit with a huge tax liability, and the money remains in a tax deferred status?

You have two options – if you are transferring the entire account to your ex-spouse, you can simply change the ownership (name) of the IRA. Or if you’re only moving a portion of the account to your former spouse, you’ll want to transfer the specified assets directly into an IRA in his/her name. The key terminology to remember is transfer!

How to Move Forward with a Tax Free Transfer

Your divorce decree should be very specific in regards to how your assets are to be divided. Who will get the pre-tax retirement accounts versus the ones in which taxes have already been paid as this can make a huge difference when it comes time to withdraw funds. Once you’ve figured this out, decide how and when to split the accounts. Will you receive all of a particular stock? A certain fixed dollar amount? A percentage of the account? And since investment accounts fluctuate in value, it is also important to state in the agreement exactly when the account should be split. You should also note who will pay any applicable fees.

Once you’ve ironed out the details, both you and your former spouse will need to provide a copy of the Qualified Domestic Relations Order (QDRO) to your employee benefit plan administrator or financial advisor. This legal order will give the account custodian authority to transfer assets and explain exactly how to do so. Paperwork authorizing the account transfer will need to be completed, and it’s likely that both you and your former spouse will be required to sign.

Making a mistake while dividing your retirement account can be expensive, and often times, errors cannot be reversed or remedied, so it’s important to make sure the split is performed properly. Be sure to work carefully with your financial advisor during your divorce and account split to ensure there will be no tax consequences to either you or your ex-spouse.

Don’t Forget…

Another important thing to remember, after any major life changes (especially a divorce) – review and update your beneficiaries! With all the stress that accompanies a divorce, making this simple change is an easy step to forget. But unless you want your assets to continue to go to your ex, avoid a nightmare for your heirs, and take the time to update beneficiary designations on IRAs, 401(k)/403(b)s, life insurance policies and any other assets with beneficiary designations!

Next Steps

If you a CRNA who is considering or are currently going through a separation or divorce and have questions about your finances, reach out to us. As financial planning specialists, we can help you review your existing situation and evaluate the steps to take now and to prepare for your future.