Sep 18, 2017 | Divorce


Illinois couples who are planning to divorce should take steps to protect their ability to retire. There are several mistakes that people should avoid so that they can protect their retirement security.

Getting divorced can be expensive, leading some people to consider tapping into their retirement accounts in order to pay for their legal fees. If they take withdrawals from their 401(k)s or IRAs before they are 55 or 59 1/2, however, they will be assessed early withdrawal penalties of 10 percent on top of having to pay taxes on the amounts that they withdraw.

People should sit down with their spouses and discuss preserving their retirement accounts during their divorces so that they can each afford to retire later. The accounts should be valued so that people understand how they should be divided. Some accounts may be worth less than others that contain the same amounts because of how they are taxed. For instance, contributions to Roth accounts have already been taxed while 401(k) contributions are not. This means that the 401(k) balance will be taxed when it is withdrawn while the Roth balance will not.

Determining how to divide retirement accounts may be complicated, necessitating the help of an experienced family lawyer. Attorneys may understand the requirements for dividing each type of account and make certain that the correct orders are prepared. They may also negotiate agreements for their clients to help them to preserve more of their retirement savings. In some cases, it may make sense to reach agreements for the ex-spouses to take other assets in lieu of the portions that they would receive from the retirement accounts. Attorneys may help their clients understand the potential tax consequences of various property and asset division scenarios so that they minimize their losses.