Ask any Illinois resident who has been through a divorce what the process is like and you are bound to hear stories about how difficult it is. The incredibly wide range of topics to be discussed and agreements to be made can be overwhelming.
Concerns for one’s immediate situation often feel so dramatic that giving thought to protecting the future can be even harder. However, the need to stay focused on how to preserve retirement assets through a divorce is critical.
Take care to avoid the loss of your future income
Retirement accounts, pension funds and other long-term investments are common assets that are often split in modern divorces. There are some ways that this can be done but there are also some all-too-simple ways that undue penalties and taxes can be assessed on these accounts, essentially wiping away a large part of a person’s investment.
Caution is urged in these situations and the following are some ways that you can help protect yourself:
- Always use the QDRO : The Qualified Domestic Relations Order is your best bet for ensuring that all tax entities and other important agencies or companies identify your financial transaction as a part of your divorce settlement. If you receive money from a retirement account as stated in your divorce decree but the IRS views it as an early distribution, you will see a large portion of your money paid out to taxes and other penalties. The QDRO prevents this unfortunate situation and lets you keep your money as planned.
- Only move money when allowed : Even with the use of a QDRO and clear divisions noted in your settlement agreement, the laws allow for the distribution or transfer of retirement money only within a certain time period. Make sure that your transaction happens at the right times or, once again, you could be facing big tax and penalty bills.
- Divide assets by percentages, never dollars : Let’s imagine for a moment that you and your spouse have a retirement account that is valued today at $100,000 and you both agree to receive $50,000 when your divorce is final. Now let us look ahead to the date that your disbursement is to take place. The market may have dropped and your retirement account is now valued at only $80,000. If your original agreement indicated that each of you were to receive 50 percent, each person would then be owed $40,000. However, since your agreement indicated each person would receive $50,000, one party may be eligible to receive that amount leaving the other person with only $30,000. Citing divisions in percentages maintains the intended equitable sharing or distribution that was originally intended, even if ultimate dollar values change.
Sometimes it is a simple matter that can make a big difference and this is truly the case in the above situations. When you work with a legal professional who has the right experience, you can be assured that your current and future assets will receive the right care and protection when navigating your way through a divorce.