What You Need to Know About a ROTH IRA in a Divorce

Written by Denise French, MAFF, CVA, CDFA, CRPC

Divorce itself is an emotionally charged, troubling process. Add major financial decisions to the mix and divorce can be a recipe for disaster. Litigants are forced to make life-altering financial decisions during a time of emotional turmoil. Anyone walking through a divorce knows this can feel like an insurmountable task. There is hope! You can do this!

Our next few articles will focus on different types of assets we see divided on a regular basis in divorce. We will discuss the different types of financial accounts, their tax benefits or consequences and their pros and cons.

The ROTH IRA in a Divorce

The ROTH IRA is a powerful financial tool which differs in many ways from a Traditional IRA or a Rollover IRA. The ROTH IRA can be used for a variety of needs sometimes without taxation or penalties. If you have a ROTH IRA to divide in your divorce you have potential access to a powerful financial tool.

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Clearing Up Misconceptions About Thrift Savings Plans & Divorce

Let's start with the basics. There are so many different types of retirement accounts out there - IRAs, ROTH IRAs, and 401(K)s just to name a few. While those are probably the most common, there are numerous others. For someone who is not dealing with them every day, it can be confusing. More importantly, not all retirement assets are the same nor should they be treated as if they are. Thus, we are dedicating this blog post to one of the less commonly known retirement plans. That is the Thrift Savings Plan, also known as a TSP for short.

What is a Thrift Savings Plan? If you have been working for the Federal government or the military for much of your career, you may already be very familiar. However, those in the private sector may not be. The Thrift Savings Plan (TSP) is a retirement plan. It is available to civilian Federal employees and members of the uniformed services. If you are familiar with a 401(K) in the private sector or a Deferred Compensation account for state...

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What Everyone Ought to Know About Divorce and Retirement Accounts

Valuing and dividing retirement accounts is more complex than most divorcing couples expect. Below are five common questions we receive regarding divorce and retirement accounts.

1. Does a retirement account only belong to the person whose name is on it?

Imagine that only one spouse worked for most of the marriage while the other cared for the kids. If that's the case, most of the retirement assets are likely only in one spouse's name. It is common for clients who own retirement accounts to believe that they are entitled to the entire account since it's in their name. However, money earned during the marriage is a marital asset and subject to division in a divorce.

In contrast, retirement assets earned prior to the marriage are typically considered separate assets and not subject to division in the divorce. In addition, the growth on those separate assets during the marriage is considered separate property. For an accurate appraisal of what portion of a retirement account is...

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How does a declining stock market impact your divorce settlement?

Divorce can be one of the most stressful changes in your life. It’s common for just one party in a marriage to be responsible for all the finances. Even if both parties are aware of the day-to-day finances, it’s even more common for only one party to handle all the investments.

The combination of learning about your investments for the first time and watching the value of those investments decline in a volatile stock market can be overwhelming. How does a declining stock market impact your divorce settlement agreement? And as you look beyond the divorce, what do those declines mean for your longer-term financial future?

Educate yourself

If you have not been involved with your investments or even if you could use a refresher, I encourage you to start by sitting down with a Certified Divorce Financial Analyst (CDFA) to review each of your assets. When you do this review, I want you to understand the following about each asset:

(1) What type of asset is it?

(2) How is the...

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Should I leave my Ex's retirement account as is?

If you are recently divorced and not sure what to do with your ex's retirement account, you are not alone.

It is common for one partner to handle all of the retirement accounts in a marriage. In fact, I get calls all the time from individuals who are extremely frustrated. After they've been divorced for over a year, they still have not moved all the relevant accounts into their own name. There is often a lot of confusion around this issue.

With respect to receiving a portion of an ex's 401(k), here's the first question:

If you are receiving a distribution from a 401(k), has the Qualified Domestic Relations Order (QDRO) been filed?

One of the biggest mistakes that a person can make after a divorce is not following up on the QDRO. I really encourage clients to have the QDRO drafted prior to their final court appearance if at all possible. That way, it can be signed by the Judge and submitted to the plan administrator right away.  Keep in mind each plan has its own QDRO...

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7 Questions to Ask Yourself When Dividing Assets in a Divorce

Worry over financial decisions is normal on an average day but when going through a divorce, it can be paralyzing. The fear around these issues is completely warranted. You only have one chance to get it right and your divorce could quite possibly be the largest financial transaction of your life - not to mention the fact that you are likely overwhelmed by emotions related to all the changes happening in your life.

One way to handle the financial fears is to take control over your situation. Did you know that you don't have to divide your assets 50-50 right down the middle when you get a divorce? In fact, you may not even want to! If it's not simply 50-50 then how do you divide assets in a divorce?

Take control of how to divide assets in a divorce by avoiding litigation

One way to have greater control over how assets are divided in a divorce is to consider alternatives to the traditional litigation process. An important benefit of processes such as mediation and collaborative...

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Dividing Pensions in a Divorce: Shared vs. Separate Interest

Dividing pensions in a divorce can be confusing. For starters, some clients that I see are often confused (even after negotiating their divorce settlement) regarding what type of retirement account(s) that they have. In this blog, I am referring specifically to defined benefit plans. Defined benefit plans are retirement plans where the employee spouse has earned a monthly benefit, which will be paid out once s/he retires. In some divorce cases, the employee spouse and his/her former spouse agree to divide the future benefit via a Qualified Domestic Relations Order (QDRO).

Unfortunately, most settlement agreements that I see where pensions were divided do not adequately address the options allowed by the defined benefit plan. To be clear, the options are not consistent across all plans. Thus, it does take some research to know what the options are before they can be considered. The easiest way to avoid some very common mistakes is to request a copy of the plan summary document and...

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How to determine which assets to keep in a divorce

Most of the time, when I sit down with couples preparing to dissolve their marriage, individuals assume that each account will be divided in half. Did you know that's not always the case? In states like Ohio, where the law requires an equitable distribution of assets in a divorce, it's important to remember that equitable is not always equal. If you have options, how do you determine which assets to keep in a divorce? Rather than ramble on about all of the issues to consider, let's take a look at an example of a couple with whom I recently worked. I will refer to them as Michelle and James and have tweaked the details so as not to divulge their confidential information.

An Example of Dividing Assets in a Divorce

James and Michelle were married for the last 18 years. Michelle is a teacher who has worked in a local Ohio public school district for 23 years. James has a job in IT in the private sector and has worked at various companies throughout his career. He has been with his...

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What is considered separate property in a divorce?

I often have clients come in who are misinformed about separate property and which assets should be divided in their divorce. Since I'm in Ohio, I will use that as my example. Ohio is an equitable division state. That means that a couples' marital assets are divided equitably in a divorce. It's important to note that equitable is not always equal but I will come back to that in another post. The question, however, is what constitutes a marital asset. All else would be considered separate property.

Pensions in Divorce

I hate gender stereotypes but I see this all the time so I think it is worth calling it out. I have never once had a man come into my office and say, "She can keep her pension, she earned it" while I frequently hear from female clients, "He can keep his pension, he earned it." I'm hoping others working in the divorce field have not had that same experience.

The pension is commonly the largest asset of the marriage.  If all or a portion of the pension was...

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QDRO: I need a what??

what does QDRO stand for anyway?

QDRO stands for Qualified Domestic Relations Order. If part of your divorce settlement includes a division of retirement assets held with a current or former employer, you may need a QDRO (Qualified Domestic Relations Order) or similar document, depending on the retirement plan. A QDRO is a document that gets filed with the plan administrator that tells the plan how the account will be divided.

A Costly Mistake

One of the mistakes that I see people make when dividing assets, is simply dividing each account down the middle. Seems like it would be fair, right? While it might be fair, it may also cause you to incur more costs than you would, if you were a little more creative about your settlement.

There are a couple of costs to consider. There is a cost to having someone draft the QDRO, which generally ranges from $450-$1000. Additionally, each plan charges an administrative fee on their side as well. That fee generally...

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