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divorce and finances, divorce and retirement, qualified domestic relations order, qualified domestic relations order, Wheaton divorce attorneys, retirement plansAccording to US News and World Report, as many as 800,000 Americans are divorced each year. Divorces can be emotionally trying, psychologically challenging, and incredibly complicated. While most people struggle with the emotions of a separation from their former-spouse, it is important to have an eye on the logistical side of the separation. Understanding the financial implications of a divorce can make all the difference in ensuring a financially stable future for yourself post-divorce.

From retirement plans to the nuance of taxes, understanding how your financial situation will be altered after your divorce can be a tall order. If you are moving into a new chapter in your life and preparing for divorce, hiring an experienced divorce attorney can help ensure a healthy and sustainable financial future for you and your family. Consider the following fundamental tips that can help you help yourself during your divorce.

Preparing for a Hostile Separation

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Of all the assets that couples possess, retirement accounts are often one of the largest. They are also one of the most difficult to divide. Do it incorrectly and you and your spouse stand to lose a significant amount of your nest egg - and not just immediately. Improper division of a retirement account can also lead to major tax headaches. The following information can help you understand some of the most common pitfalls of retirement asset division in divorce, and how you may be able to avoid them.

Each Type of Plan Has Its Own Rules

One of the most important things to understand is that each type of plan has its own set of rules. For example, with an IRA, the division should be treated as a transfer "incident to divorce." Failure to label it this way can result in tax penalties for withdrawing early. Some plans need a QDRO to transfer assets from one spouse to the other, and certain qualified plans have limited flexibility when it comes to changing your beneficiaries (which you should always do after a divorce has been finalized). An experienced divorce lawyer can help you understand the particulars of your plan.

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With the rising rate of divorce among the baby boomer generation, discussions about retirement accounts have taken center stage. It makes sense, especially when you consider the impact that a divorce can have for those in the later stages of life. If you are planning on filing for divorce and are reaching retirement age, be prepared, know how retirement assets will be divided, and learn how you to effectively manage your risks.

How Retirement Assets Are Divided in Illinois

Illinois is an equitable distribution state. Essentially this means that, unlike equal distribution states, where everything is split down the middle, divorcing couples in Illinois everything "fairly." Sadly, the obscurity of this concept of fair can create a lot of contention in divorce. This is especially true when the stakes are high - like when your financial stability during retirement is on the line.

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Whether you are nearing retirement age, or still have years or decades to wait, it is never too early to think about retirement. This is especially true for those who are planning on filing for divorce. Assets, including retirement accounts, are subject to equitable distribution during the process. Failure to consider how this will impact your retirement could have negative consequences, long into the future. In contrast, those that plan effectively and consult an attorney during their divorce are more likely to be prepared for retirement. Learn what you need to know to achieve the latter.

Distribution of IRAs During Divorce

Individual retirement accounts, typically purchased by an individual, are generally considered marital property. In this instance, the non-owning spouse's portion is usually rolled over into a new IRA account under their name. However, those that were initiated prior to the marriage may be considered exempt, as long as marital funds were not contributed to the IRA account. Keep in mind that here may be other limitations, exclusions, or variances as well. An attorney can help you understand how your divorce may affect an IRA that belongs to you or your spouse.

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Sometimes, the most valuable asset in a divorce is one that is the hardest to divide, without destroying its value. Retirement accounts such as IRAs, 401(k)s, and pensions are governed by a combination of state and federal laws. Often, there are major tax consequences for early withdrawals from these plans. If the correct formalities are not followed, accounts can be rendered worthless, or one spouse could end up with nothing-even if the account was marital property.

What You Do Not Know Can Hurt You

For generations, state and federal lawmakers have worked hard to protect the retirement accounts of workers. A detailed set of regulations and guidelines have developed that control in regards to how plans may be split in cases of divorce. Many times a special order is required-a Qualified Domestic Relations Order (QDRO). A QDRO must be signed by a judge before any changes can be made to the way a retirement plan pays out the benefits.

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