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Protecting your money in a divorce

Getting divorced can be an emotional roller coaster. You may be filled with myriad of emotions, but it's important to set those aside and concentrate on other divorce factors that are important. These include child custody, child support, alimony and property division. Once very important thing is to know how to protect your money in a divorce.

A financial planner can help you during a divorce by working with your divorce attorney to help you learn more about various strategies for dividing assets. One thing to consider is the tax consequences for each asset.

An example is the difference between a Roth individual retirement account or a Roth 401(k) and a traditional IRA or 401(k). When contributions are made into a Roth IRA or 401(k), the taxes are paid then -- not when money is removed. As a result, distributions that qualify are tax free. A certified financial planner said, "Whichever spouse will in a higher tax bracket than the other after the divorce could consider offering a concession on something else, in return for retaining the Roth IRA or Roth 401(k) assets."

It's important to be aware of the plan's value after taxes. If the spouse with the plan is in the 25 percent tax bracket, then $100,000 in 401(k) funds is only worth $75,000. What might look like a good deal to the receiving spouse may not be once taxes are due.

Also, it's important to understand a Qualified Domestic Relations Order. A QDRO must be approved by the plan's administrator to ensure that any division of assets is allowed by the plan's rules. You need to ensure that the QDRO outlines how the division of the benefits is handled so you know how long to expect before a payout is coming.

These are just a few things that can help you protect your money in divorce. If you have questions concerning how a specific point of asset division will affect you after a divorce, your attorney can provide guidance and advice.

Source: U.S. News, "12 Steps to Protect Your Money in Divorce," Christine Giordano, Aug. 15, 2016

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