Divorce produces some of the most stress filled and anguished times of any person’s life, even in the “easiest” of divorces. When a couple has saved significant wealth over the years in retirement accounts, it might be necessary to divide them between the divorcing parties. If this is done improperly, then very large tax penalties, as much as 45% of the total of your retirement savings, may result.

Money saved in company 401(k) plans or IRA’s is sheltered from taxation during your working years. Any withdrawals before age 59 ½ trigger taxes on the withdrawals plus a 10% penalty. Imagine that a man and woman divorce and that the man has $100,000 in his company 401(k). In the interests of equality, they decide that the woman should receive $50,000 for her retirement.

Without proper planning, the man might be tempted to simply write her a check for $50,000 from the account, thinking that she can put the money in an annuity in order to preserve the tax deferred status of the growth in the account. What a surprise he’ll get next April 15th, when he realizes that he is liable for the income taxes on that money plus a $5,000 penalty.

A Qualified Domestic Relations Order (QDRO) Prevents Penalties and Premature Taxation

The QDRO is a judgment, decree or order (this includes property settlements) that relates to the provision of alimony, spousal or child support or property settlement. In order to satisfy the IRS and avoid tax penalties, a judge must issue the order. The mere fact that both parties agree to it is not sufficient to allow the parties to divide the funds without tax consequences.

Only Former Spouses and Dependents May be Beneficiaries

Originally, a qualified plan like a 401(k) allowed wealth to grow without taxation for the benefit of the employee who made the contributions. A QDRO allows this process to continue in the names of more than one person. The original owner might retain 50% of the balance of the account, while a former spouse or even a dependent child might get the remainder. The only alternate payees for a QDRO are spouses, ex-spouses and dependent children. As the name implies, people outside of the family cannot be granted a share in someone’s retirement accounts.

In the event that one of these parties is a minor or legally incompetent, then the order may require payment to someone with legal (fiduciary) responsibility for that party.

For more information, see the US Department of Labor’s Website, under Qualitifed Domestic Relations Orders.

Women face different life challenges and financial risks than men do. They need to have an advisor who takes this into account even when planning. We’re dedicated to helping women embrace the world of investing and therefore empower them to live well and without fear of what the future holds.

Eventually, 90% of women will spend some time as the sole person in charge of her financial futures at some point in their lives, according to the National Center for Women and Retirement Research. Even more important, from a planning perspective, is the fact that a woman’s retirement portfolio will need to take care of her for five, ten or even 15 years longer than a man’s.

Transitions Can Bring Opportunities for Safety

Just starting out on the road to financial independence and find yourself alone? With the right planning and care, you'll be abel to feel confident and assured that you’ve made the right choices for your future. Sound and prudent planning will give you the confidence and strength to pursue your own interests without fear of the future.

Don't Fall Victim to these Statistics

• Over 75 percent of women are widowed at an average age of 56, and 1 in 4 of these women are broke within two months of being widowed.
• Less than 15 percent of women who are married or living with a significant other feel responsible for planning retirement.
• Only 41 percent of women participate in their employer's 401(k) plan.
• Eighty-seven percent of poverty stricken elderly Americans are women.

Help for First Time Investors

We are committed to providing education and support for clients who, for reasons of death, divorce or illness, find themselves on their own. Understanding your investment plan now can help prevent financial crises down the road. We can make the process easy and stress free for you. If you apply yourself, it's fairly straightforward. We’ll help you understand how investing works and help you preserve your lifestyle as well.

Establishing a financial plan is a worthwhile endeavor and is not merely the province of people who have lots of money. Financial planning is designed for everyone. It helps you focus on your dreams and financial goals. Most people find it difficult to save or invest without specific reasons. When you verbalize your goals and work with us to devise a solid plan, we’ll help you understand how your plan functions as a whole.

If you’re a woman who is presently married, it’s important to see part of your financial life as if you will be on your own someday. Unfortunately, the statistics are real. Women outlive men by seven years. Plan your life with this in mind. Manage your finances together, but have separate credit cards in your name. Make sure that your name appears on all investments accounts accumulated during your marriage and check with us to be sure that your estate plan can make a financial transition smooth in the event of a transition.

Women Have an Investment Advantage

Men never ask for directions. This often applies to investing as well as driving. Women happily take good direction. Accepting and using good financial advice will benefit you beyond the bottom line. You’ll feel safe, secure, and free to move on with your life confidently.

So you can see where the bleak news may  have an upside to it. As investors, women who educate themselves actually do better than men. A few studies indicate that a woman’s natural (and intelligent) caution about investing reduces her tolerance for speculative risk. Also, women do not trade investments as often as men do, insuring a decrease in transaction costs as well as decreasing the possibility of doing something at exactly the wrong time.