Divorce and Retirement Assets; What you need to know now

In my December, 2015 blog, I explored spousal divorce and more specifically some tax considerations in the division of the marital estate.  Today, I will discuss another tax consideration related to spousal divorce.

One must be careful when withdrawing money from a qualified retirement plan or traditional IRA before the age of 59.5 due to penalties on early withdrawals – monies withdrawn are subject to income tax on the amount withdrawn plus an additional early withdrawal penalty of 10%.  There are, however, some exceptions which eliminate early withdrawal penalties. One such circumstance is related to an early withdrawal as part of spousal divorce.

In the case of spousal divorce, there are no early withdrawal penalties on distributions to the nonparticipant spouse when under a Qualified Domestic Relations Order (QDRO).  Although regular income taxes are still due, there are no limits to the amount distributed. Please note that the distribution must be to the nonparticipant spouse under a Qualified Domestic Relations Order and one must comply with these procedures and rules.

As noted in my previous blog, there are numerous considerations that must be recognized, understood, and quantified prior to making decisions regarding equitable division of the marital estate.  Early withdrawals or distributions from qualified retirement plans or traditional IRAs constitute one consideration.

As in my previous blog posts: it is paramount to comprehensively understand the facts and analyze the appropriate data when dealing in the complicated arena of spousal divorce.

Please contact me at bpetrie@claruspartners.com or (614) 545-9100, if you have complex financial issues that need be understood and presented simply and cleanly.  At Clarus, we bring clarity to complex financial issues so you can make solid, well-informed financial decisions.

I am not an attorney and do not purport to be giving legal advice.  If you are seeking legal advice, please consult your attorney.

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