Tax season can be a complicated time for anyone in Illinois, but it may be especially challenging for those who are going through the process of divorce. The wrong decision during a divorce proceeding can have negative tax implications down the road. Some tips might help people to make smart decisions that will benefit them tax-wise in the years to come.
First, a qualified domestic relations order, or QDRO, allows divorcing spouses to roll a part of one party's pension plan into an IRA account of the other spouse without tax on the rollover. In this situation, the early distribution penalty will be waived. However, this does not automatically mean that rolling over pension plans is the best choice.
Rollovers offer distance from former spouses. They also allow people to have more control over their investments as well as more beneficiary designation choices. Another benefit is the possibility of deducting fees and no required withholding. However, remaining in the pension plan of a former spouse also has benefits; it could mean access to the fund for a person who is below 59.5 years old, along with potential protection from creditors.
An Illinois family law attorney can help a client make wise decisions regarding the division of assets and property during divorce proceedings, with a careful eye focused on potential tax consequences. However, if the parties are not able to arrive at mutually beneficial decisions in an amicable way, the divorce court will have to get involved. A judge will ultimately make these important decisions, although the decisions might not align with the wishes of one or both of the parties.
Source: nasdaq.com, "8 Ways To Make Divorce Less Taxing", Ingrid Case, June 7, 2016