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In a divorce does the spouse have to wait for the other spouse to retire so they dont get penalized for getting it early?

My husband said I would get half his pension,but I had to wait till he retires or get penalized,is this true

Jan 24, 2015 by Diane in  |  Flag
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5 votes
Steven Kaye Level 13

Diane, If your husband's plan is a qualified plan, you might be able to receive as part of your divorce settlement Qualified Domestic Relations Order (QDRO),a court judgment, decree, or order. The QDRO specifies what the plan administrator is to do with the spouse's share of the plan.

There are a few options to separate assets in a QRO: One option is to segregate your portion of the plan until your husband reaches retirement age. At that time, the you can access the funds. With this approach, you are treated as a participant in the plan. The employee's defined contribution plan balance (or defined benefit plan accrued benefit) is valued as of a certain date, and that benefit is divided between your husband and you in accordance with the QDRO. Once divided, the you are treated similarly to a terminated participant with a vested deferred benefit.

If the plan allows, the plan administrator can distribute to you the full amount of money due. You can then either keep the money and pay tax on it now, or roll it into an IRA within 60 days, delaying taxation until later. There are also certain advantages to this approach. For example, if you need cash now for living expenses, you can keep all of the distribution. Also, you're able to control the investment decisions. However, there are some drawbacks: if you don't roll the money into an IRA account within 60 days, you may be subject to income tax (and perhaps the 10 percent penalty tax) and you'll lose the long-term tax-sheltering advantage as well as the retirement savings if you spend the money now.

An alternative option is to trade the retirement assets for something else. For example, a divorcing couple can simply decide that one spouse gets the entire retirement plan and the other gets the house plus alimony. Or perhaps the other spouse gets a big cash buyout right now instead of a claim on the pension assets.

You should retain the advice of an attorney and a financial professional to help you weigh the pros and cons. Hope this helps. Chris

2 Comments   |  Flag   |  Jan 24, 2015 from Warren, NJ
Diane

Yes that helps thank you

Flag |  Jan 24, 2015
Diane

But i need it now cause we r only separted and he cut me off said im on my own

Flag |  Jan 24, 2015

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3 votes

This is usually plan specific, but in general, the plan likely has payouts related to the employee's age, time at the company and his status (retired or still employed). Any early distro would likely decrease the benefit amount. If the retirement were non pension (say a 401(k) or profit sharing plan) then there is likely a QDRO that splits the account (no ongoing pension involved) and you can get your half based on the date of the QDRO.

View all 6 Comments   |  Flag   |  Jan 24, 2015 from El Paso, TX
Steven Kaye

Yes you should be eligible for a QDRO.

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Flag |  Jan 24, 2015 near Warren, NJ
Billy Defrance, CFP®

In that case, I agree with Steven. The plan should be eligible for a QDRO, and that is a court order. He and/or his company will have no way around it, once it is issued. From a comment on another line, I notice that you are only separated now. The QDRO is only issued with the divorce that I am aware of. There are usually few options for making early distributions from a plan without penalties. Good luck!

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Flag |  Jan 25, 2015 near El Paso, TX

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2 votes

As noted, a pension plan may have certain restrictions regarding payouts, but I believe (and I will defer to the CPA's in the community) distributions from a qualified retirement plan as a result of a QDRO are exempt from the 10% early distribution penalty.

2 Comments   |  Flag   |  Jan 24, 2015 from Bridgewater, NJ
James D. Kinney, CFP®

But that doesn't mean they won't be subject to ordinary income tax.

Flag |  Jan 24, 2015 near Bridgewater, NJ
Diane

Ok thanks

Flag |  Jan 24, 2015

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2 votes

Diane,

I am not sure of your age, but you will also have potentially several options available to consider regarding Social Security and how you access your benefits or even his. If you or he are older and approaching 62, please advise and I can share some options you may want to consider. If not then at least make a note that in the future you will have some additional options for consideration.

Best of luck

Brett

3 Comments   |  Flag   |  Jan 24, 2015 from Carlsbad, CA
Diane

He will b 50 this yr and i will b 48

Flag |  Jan 25, 2015
Brett Eric Gottlieb

Thank you for sharing your age's. What many of the other advisors mentioned is true and I would follow their advice for now, but remember when you reach 62 you will have significant options to consider for social security, so find an advisor that knows their area and be sure to check all options.

Flag |  Jan 25, 2015 near Carlsbad, CA
Diane

Thank you all so much for your advice ,all of you get a thumbs up from me,

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Flag |  Jan 25, 2015

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