Ohio readers who have gone through the divorce process know that for some couples there is a need for one of the spouses to receive spousal support. In many cases, the spousal support is ordered as a part of a final divorce decree because one of the former spouses is unable to economically support themselves alone. This order is common, especially for those who have had long marriages.
However, our Ohio readers may be interested to learn about one man who was required to pay spousal support that left him with a large tax bill. In that case, the man elected to withdraw $52,684.11 from a qualified plan to give to his ex-spouse as spousal support. That withdrawal was done without a Qualified Domestic Relations Order. This resulted in a 10 percent penalty from the IRS to be assessed on the withdrawal.
The law allows a person to distribute a portion of a qualified plan to another if a QDRO is in place. There are specific regulations that apply in such instances, including the need to have the money dispersed to the other person as opposed to the plan owner. In addition, there may be other rules that apply to such situations.
For those who are going through a divorce and must pay spousal support or make other property distributions, obtaining a complete understanding of all applicable rules, including tax implications, maybe beneficial. This understanding can be obtained in some cases through consultation with an authority on such subjects. Regardless of the method used to obtain an understanding, a person going through the divorce process may find it helpful to have as they negotiate a spousal support settlement as part of a comprehensive divorce agreement.
Source: forbes.com, "Penalty On Qualified Plan Withdrawal To Pay Alimony," Peter J Reilly, Nov. 10, 2012