Using 401(k) assets to pay for expenses during the divorce process can be costly. If you are under 59 ½ years old, you may have to pay income tax and a 10% penalty on the withdrawal. It may be a better option to take a loan against the 401(k) up to maximum of $50,000. But before resorting to raiding any retirement funds, it would be best to consult with a financial professional such as a certified divorce financial analyst who can review your options. Read this article for more information.
Fidelity’s Divorce and Money Study provides some important insights regarding the effects of divorce on the financial and emotional well-being of couples. Being involved and engaged in financial matters during the marriage provides an advantage for dealing with the divorce and for recovering after the divorce. Read more about the study.
Some employers still offer old-fashioned defined benefit pension plans to their employees. A divorce settlement may provide an employee’s ex-spouse with a present or future interest in the lifetime pension payments. To determine the marital portion of the pension it may be necessary to hire a pension consultant. This article provides useful information regarding the division of the marital portion of pension plans.
What is the best method for splitting a defined benefit plan in a divorce?
Qualified domestic relations orders (QDROs) are used to divide qualified retirement plans, such as 401(k)s, 403(b)s and defined benefit plans. Most often, defined benefit plans are available to workers in fields, such as teaching, military service, state and local government and manufacturing. There are two methods that can be used in a QDRO to split a defined benefit plan: shared interest or separate interest. The spouses will have conflicting objectives and it is important to review the options carefully. These methods are described in detail here.
A divorce forces a reset of your financial and retirement goals, especially if you are older and closer to retirement. There are some actions you can take to strengthen your financial condition including implementing a qualified domestic relations order, understanding spousal benefits under the Social Security program, and updating your retirement plan. This article provides more detail regarding steps to take after your divorce.