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Dividing retirement in a divorce? Don't get pegged by the IRS

When Connecticut residents begin building up their retirement accounts at work, they're probably aware that there is a pretty hefty penalty for withdrawing money from it prior to retirement. During a divorce, retirement accounts, or at least a portion of them, could be considered part of the marital estate. Dividing those accounts could lead to a significant financial impact if not done correctly.

When Connecticut couples attempt to create their own divorce settlements without the benefit of the right advice, they may split their retirement accounts thinking that they will just have to deal with the early withdrawal penalties. Those who opt to get professional assistance, however, will discover that if they obtain a qualified domestic relations order, they do not have to worry about those penalties. The QDRO, as it is more commonly referred to, lets the retirement plan's administrator and the IRS know that the distribution is subject to a court order in a divorce, which creates an exception regarding taxes and penalties.

Specific information is required in order to ensure that the order is valid. In addition, every plan is unique, so it would be a good idea to confer with the administrator before obtaining the QDRO. Otherwise, the order may not do its job as intended.

Working together to come to an amicable divorce settlement is a good idea, but that does not mean that couples should forgo obtaining assistance to ensure that the settlement adheres to current law, and that all other legalities are covered. What many people believe they save by doing their divorces themselves could backfire. For instance, without knowing that a QDRO is needed to distribute funds from retirement accounts without incurring significant tax ramifications, could end up costing even more in the future.

Source: Forbes, "IRA Withdrawal Penalty A Cost Of Do-It-Yourself Divorce", Peter J. Reilly, June 30, 2017

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  • Wendy helped guide us through a very difficult and emotional process and was really able to provide an even and fair account for both parties. It's quite evident in her expertise in this area but the way she was able to make you feel safe and secure in a very insecure time goes far beyond her legal prowess. If the two parties are really willing to cooperate and collaborate, she's there to help gain the best possible solution for all involved, especially if there are children.
  • Regardless of how committed one is to the fact that divorce may be imminent and necessary, it is truly one of the most emotional and stressful situations one can experience. It can also be daunting. Wendy has a remarkable ability to cut through the noise and help you focus on the big picture while drilling down on what is most pertinent to your particular situation., they are a formidable team who work collectively with your best interests in mind.
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