Julie and Pete are in their mid 50’s and have decided to divorce. Both are worried about the affect a divorce will have on their retirement. Julie fears that she may not be able to afford to retire and Pete has concerns that he may have to push retirement back several years. Both wonder if there is a way to divide their retirement assets with a minimal amount of financial damage. Marilyn Timbers, in her article 4 Divorce Mistakes That Can Derail Retirement, raises four issues that may affect Julie’s and Pete’s retirement after divorce.

Should Julie give up her interest in Pete’s retirement in exchange for keeping the marital home? 

Often times a spouse believes it is better to keep the house rather than receive a portion of their spouse’s retirement. However, this is not always true. Julie needs to consider the cost of maintaining the home as well as its future value. If Pete’s retirement plan is well diversified, Julie may be better off receiving the retirement income. It is also important for Julie to consider the tax consequences of receiving either asset before signing an agreement.

Are all retirement accounts the same?  How are the accounts impacted by taxes?

Pete believes that it is fair for each of them to keep their own IRA accounts because they have the same value.  Pete has not considered the tax implications of this arrangement. While both accounts may have the same value, his IRA is a pre-tax account and Julie has a Roth IRA, a post-tax account.  If they were to each keep their own account, the division would not be equal due to tax consequences at the time of withdrawal; Pete pays taxes at withdrawal and Julie does not.  It is important for Julie and Pete to consider the value as well as the tax status of all of their retirement accounts.

If Julie needs cash should she take a withdrawal simultaneously with the rollover of retirement funds from Pete to her, or should she do it later?

Julie rolls her share of Pete’s 401(k) into her IRA immediately after divorce even though she needs cash to pay for divorce related expenses.  If Julie withdraws funds from her retirement prior to age 59 ½ there is a 10 percent tax penalty; however since her share of Pete’s 401(k) is allocated to her under a Qualified Domestic Relations Order (QDRO), she is entitled to a one time opportunity to withdraw money from Pete’s 401(k) without owing the penalty. Once the rollover from Pete’s 401(k) into Julie’s IRA occurs, she will be subject to the ten percent penalty should she need to withdraw the funds early.

 Should Julie decide to take all of Pete’s 401(k) in cash, rather than rolling over the funds into her own retirement account?

Although Julie has the ability to withdraw funds from her portion of Pete’s 401(k) without incurring the ten percent penalty, she should not withdraw more than she needs. While immediate cash will help Julie now, she may be sacrificing her retirement down the road. Julie needs to assess her current and future cash flow and determine how much she will need for retirement before she determines how much, if any, of Pete’s 401(k) she should withdraw rather than rollover into her IRA.

It is important for Julie and Pete to discuss these issues with both their legal and financial advisors before entering into an agreement with regard to dividing retirement assets.

(11/04/13)

Thanksgiving Tips for the Newly Separated or Divorced

            Thanksgiving is this week and you may be wondering how you will survive the holiday this year.  Whether you are separated or divorced, the start of the holiday season can be overwhelming, but it does not have to be.   In a recent Huffington Post article Denise L. Denois lists ten tips  to enjoy the holidays post-divorce.  These tips apply whether you are newly separated or divorced.  

1.  Don't compete with your ex.

2.  Keep busy.

3.  Think about your kids, and don't manipulate or guilt them into spending all of their time with you to the exclusion of your ex.

4.   Be magnanimous.

5.   Invent a new tradition.

6.   Clean house.  Cleaning can be cathartic, clear out the old and make way for the new.

7.   Find acceptance.

8.   Be creative and resist the urge to overspend during the holiday season.

9.   Focus on others.

10. Focus on yourself.  

 For more information on coping with the holidays and ways to implement the tips above, as well as tips for adult children of divorce,  read Hess Family Law Blog:  Surviving the Holidays Part 2:: Thanksgiving.

The holidays can be a difficult time for separated or divorced families. Regular schedules that provide stability and consistency are often suspended during the holidays.   Children can become anxious worrying about which parent they will be with and when.   They might become fearful of hurting one parent’s feelings if they spend too much time with the other parent or have too much fun with them.   Favorite traditions will feel different, and your children may be feeling loss and sadness.   You likely have your own feelings of stress, anger, fear and loss that can make it even more difficult for you and your children to maintain joy during the holidays.  Click here to read therapist Alyson Jones 15 Tips for Managing a Divorce Over Christmas, and click here to read Hess Family Law holiday blog post from 12/2012. 

Although this is a difficult time for your family, here at Hess Family Law we hope that after acknowledging the loss and changes of divorce, that you can begin to make wonderful new traditions and memories with your family and find people and things that you are grateful for this holiday season. 

(12/2014)

Hess Family Law wishes everyone a happy and healthy New Year! 

Dealing with family law issues such as divorce, child support, and custody can be overwhelming.   We at Hess Family Law are available to discuss your options and help determine your rights and how best to protect your interests.  Click to read Hess Family Law Blog Guidelines to Managing your Divorce, and Divorce Tips to Keep you on the Right Track.