Reducing Financial Devastation Of Divorce

The statistics on divorce in America are sobering, revealing that nearly one-half of marriages will likely result in dissolution. The emotional and financial toll on families experiencing divorce is frequently catastrophic.

In many cases, the financial trauma is multiplied by poor decisions made in ignorance or based upon poor advice and frayed emotions. Therefore, let's cover a few more of the potential financial land mines that await the unwary who are negotiating a divorce settlement.

Retirement Accounts: Any individual evaluating a property settlement from a divorce should seek to understand the tax differences that can arise from various types of retirement plan accounts. If a divorcee receives a portion of his or her ex-spouse's pension plan or defined contribution plan, such as a 401(k) or profit sharing plan, the amount can be transferred tax-deferred. In order to qualify, the distribution must be made under the terms of a qualified domestic relations order, or QDRO, as specified in Internal Revenue Code Section 401(a). Under a properly drafted QDRO, the recipient spouse can make withdrawals before age 59 if allowed under the terms of the retirement plan without having to pay the 10 percent early withdrawal penalty. Another benefit of a QDRO distribution is that the monies remain in an ERISA covered retirement plan. In most cases, ERISA plans are not subject to the claims of creditors, even in the case of personal bankruptcy.

via The Times Record: Business - Reducing Financial Devastation Of Divorce.