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Avoiding retirement derailment in divorce takes proper planning

On Behalf of | Oct 3, 2014 | Spousal Support

You’ve been married for decades. For the sake of the family one spouse stayed home and the other worked. Throughout all that time, you pursued a solid financial plan that included contributions to some form of account with the expectation it would provide for you both in your retirement.

But now, for whatever reason, the realization is dawning that factors that had kept you together have changed a decision has been made to seek a divorce. Amid all the emotion that is generated over the dissolving relationship, it would be a mistake to ignore the effects that your divorce is going to have on those retirement accounts. 

As part of the process, making sure that both spouses have what they will need for life after divorce and onward should be a priority. As experienced Ohio divorce attorneys can affirm, it’s important to appreciate that the not-uncommon practice of the working spouse getting the retirement money and the non-working spouse getting the house may not be the ideal — especially if the non-working spouse doesn’t have the wherewithal to meet all the financial obligations that may go with home ownership.

In one of our more recent blog posts, we made the point that in finalizing a divorce one key step is the filing of a qualified domestic relations order, or QDRO, as part of the process of properly dividing retirement assets. But, as certified financial planner Mark P. Cussen observed in an article for Investopedia, the type of account that is being split may require an even more refined distinction for tax purposes.

For example, while a QDRO is used to divide assets in 403(b) and 401(k) plans, funds in IRAs need to be reported as a “transfer incident to divorce.” If divorcing spouses fail to appreciate the difference and fail to file appropriately, there could be significant ramifications.

As you can see, there can be unexpected hurdles to clear unless proper consultations are made.