In Illinois, some couples divorce after they have been married for years and have accumulated substantial assets in their retirement accounts. In order to protect their abilities to retire on time, they should avoid making some potentially costly mistakes.
Some people make the mistake of financing their divorces by withdrawing money from their retirement accounts. If they are under the retirement ages specified by the different types of accounts, they may be assessed 10 percent early withdrawal penalties by the IRS on top of the taxes that they might have to pay. Others do not understand how to value the retirement accounts. It is important to consider the taxes that might be owed when making withdrawals from 401(k)s as opposed to Roth IRAs.
Different types of orders must be used to divide the money that is contained in different types of retirement accounts. For instance, 401(k) and 401(b) accounts require qualified domestic relations orders that direct the custodians of the plans to divide the money in the proportions called for in the QDROs. IRAs are divided in the court’s divorce orders, and the orders are directed to the owner rather than to a plan’s custodian.
Property division in a high-asset divorce may be a very complex process. It is important that people learn the potential tax consequences that might be involved in different property division scenarios so that they might save thousands of dollars. Experienced family law attorneys may explain what the potential impacts of dividing the assets might be. They may then try to negotiate full agreements that help to protect their clients’ ability to retire on time. Attorneys may also help their clients to understand what their budgets might be when their divorces are finished.