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Avoiding property division errors with retirement accounts

33227512_S.jpgIn-depth negotiations and a divorce agreement signed by an Illinois judge may not result in an equitable property division in all cases. According to an investment adviser, taxes and early withdrawal penalties can turn an equitable split into a lopsided arrangement. Improper treatment of retirement funds can also cause financial difficulties for divorcees down the road.

The Qualified Domestic Relations Order is a final statement on property division covering retirement assets. It is the legal order allowing quick access to retirement accounts for the purpose of fulfilling the divorce agreement. As such, the QDRO can allow for a lump payment to a divorcing spouse or other participant, complete disbursement to both parties or partial disbursement of funds.

In one example, a spouse with a 401(k) agrees to keep the account and relinquish property rights to a house of lesser value. If the funds stay in the 401(k) until retirement age, this property division looks more than fair. However, if the QDRO allows for disbursal of some retirement assets to pay alimony or buy a new residence, penalties and taxes can quickly reduce the value well below that of the marital home.

Complex property division in Illinois can bring into play many virtually unknown tax laws and loopholes that could harm or benefit a divorcing spouse. Besides providing aid during the negotiations and advice regarding Illinois divorce law, an attorney with experience handling divorces will know when guidance is necessary and the professionals to recommend. More knowledge can mean the difference between the appearance of an equitable divorce and one that results in long-term, stable finances.

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