The benefits of a QDRO during your divorce

Just posted this new article to my website:

A qualified domestic relations order can help people avoid one of the many common financial mistakes when going through a divorce.

Executive hands indicating where to sign contractMost people in Colorado who have gotten a divorce would agree that the process can be not only emotionally grueling but financially difficult as well. There are many things that make this a reality of the process yet there are some things people can do to protect themselves against some financial losses. Using a qualified domestic relations order when splitting a 401K or other employer-sponsored retirement plan is one of those things.

What is a qualified domestic relations order?

As explained by USA Today, a QDRO is a court order that makes it legally possible for one spouse to receive money directly from the other spouse’s 401K account. These accounts are set up in one person’s name only and that is generally the only person who can take money from them but the QDRO expands that for specific domestic situations such as a property division settlement during a divorce.

Why do I need a QDRO?

If a plan owner withdraws money from a 401K for purposes other than retirement, they may be forced to pay not only income tax on the distribution but also early withdrawal fees. Between the taxes and the fees, a large sum of the savings can be eaten up.

According to the United States Department of Labor, the QDRO bypasses the early withdrawal fees altogether. In addition, because the money is paid to a spouse, the account owner is no longer liable for any taxes. The spouse who receives the money may also be able to avoid the taxes when the money is received by reinvesting it into another retirement fund.

Are there other uses for a QDRO?

In addition to helping couples preserve more of their savings when splitting retirement funds, a qualified domestic relations order has other uses as well. If one spouse is ordered to make child support payments or spousal support payments, a QDRO can allow them to tap into their 401K funds to satisfy these obligations .

If money is taken to pay spousal support, it is once again paid directly to the spouse and the penalty and taxation is handled just as with a property division settlement. If money is taken to pay child support, it can be paid directly to the child or dependent or to a named guardian. However, in this situation it is the plan owner who retain tax responsibility. This is consistent with how taxes for child support payments are handled in general.

How do I know if I need a QDRO?

Anyone who is getting divorced in Colorado should talk with an attorney. Getting help to identify when things like a QDRO are needed is just one of the benefits of working with an experienced professional.

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I Just Want to Ride…

Motorcycle Arlo Guthrie wrote the Motorcycle Song (The Significance of the Pickle) in 1967 as part of the counter-revolution then sweeping the country. Son of folk musician Woodie Guthrie, Arlo Guthrie’s best known work is Alice’s Restaurant Massacree. The chorus to the Motorcycle Song is as follows:

I don’t want a pickle

Just want to ride on my motorcycle

And I don’t want a tickle

‘Cause I’d rather ride on my motorcycle

And I don’t want to die

I just want to ride on my motorcy – cle.  Continue reading

“Ride Away, Ride Away”

Cowboy silhouette (see others in my portfolio/lghtbox)  I cannot resist another classic film reference, and if you have not seen “The Searchers,” you need to. John Wayne stars in this 1956 John Ford classic which also features a cast of John Ford regulars. Better yet, the movie has a great theme song sung by the “Sons of the Pioneers:”

 

What makes a man to wander

What makes a man to roam?

What makes a man leave bed and board

And turn his back on home?

Ride away (Ride away), ride away (ride away), ride away   Continue reading

Who’s On First?

USA Abbott and Costello postage stamp  If you are my age you remember this comedy routine performed by Bud Abbott and Lou Costello as it made its way to late night television and TBS a number of times during the 1970’s. Additionally, a board game with the same name was also released around this time. First performed in 1938 this routine was based on a fictional baseball team in which the players were named Who, What, I don’t Know, Why, Because, Tomorrow, Today and I don’t Care. If you can and could follow the relationship of the players to one another throughout the skit you are better than me.  Continue reading

How Should I Handle a Mortgage When Divorcing?

I just published this article on my website:

Mortgage concept by money house from the coinsIn addition to dividing assets when getting divorced, couples must also address debts. This means they must choose how to handle mortgages as well as homes.

Divorcing spouses in Colorado who own a home together must generally wrangle with the question of what they will do with their home once divorced. Many people, especially women, have strong emotional ties to their homes. This can make the thought of selling a home very difficult and upsetting.

If young children are involved, concerns about maintaining stability for the kids often contribute to a decision to keep a home. For other people, they prefer to sell a home so as to get more physical and emotional distance from their prior marriages and lives.

Houses and mortgages are not the same

Regardless of what people decide to do with their home, it is important for spouses to remember that making a choice about a home is not the same as making a choice about a mortgage. Conscious and deliberate thought must be given to what should happen to the financial liability associated with a home .

Selling a home

Bankrate explains that among the many options divorcing spouses have, selling a home may be one of the cleanest and least pitfall-ridden from a purely financial perspective. This eliminates any future financial ties regarding the mortgage between spouses once the divorce is over.

If the home’s equity is less than the amount owed on it, a short sale may be required. While this may have some negative credit impact, it again makes a clean break for both spouses.

Sharing the mortgage

If the couple keeps the home even if only one spouse will continue to live in it, they could choose to maintain a joint mortgage. Spouses should be very careful about this arrangement even if a divorce decree specifically states that one spouse is responsible for making the mortgage payments.

If both names are on the mortgage, both people can be held accountable for the debt. Any missed payments or foreclosure can negatively affect both spouses’ credit. According to Time, this is true even if a quitclaim deed transfers ownership of the home to one person only. Again, homes and mortgages are not one in the same.

Refinancing

One person may wish to keep the house and is able to get a new mortgage in his or her name only. This avoids the issues associated with maintaining a joint mortgage and lets the spouse who wants the home have it.

Getting the right guidance

In addition to remembering that homes and mortgages should both be reviewed, decisions about either should not be made in vacuums. Working with an attorney when getting divorced is always recommended so Coloradans can understand their full financial picture with all assets and liabilities viewed together.

“No, It Isn’t All Yours”

Piece of of chocolate cake on the tableWe have all been faced with the following situation: there is one slice of cake left and everyone wants a piece. How can you ever hope to divide the remaining piece so that everyone who wants some is satisfied? Well, the simple answer is that you cannot without some form of compromise. Similarly, ending a marriage, dividing property, and agreeing to a parenting plan, all involve choices, and compromises. Continue reading

“Houston, we have a problem”

Spaceship In Space Most of us remember these words spoken by Tom Hanks in the movie “Apollo 13” (or if you’re old like me you remember the actual event), and for me the words represent a moment in which the astronauts realize they had a problem beyond their ability to solve. We all have these moments, but as to when we recognize such moments is different for each of us, and sometimes it can be too late.   Continue reading