An old adage goes, “Someone who represents himself has a fool for a client.” While this is often attributed to Abraham Lincoln, the saying is probably pre-dates Lincoln. Whoever coined the phrase made an important statement, especially in matters of divorce.
Do it yourself divorces (DIY) can be very expensive especially if there are assets such as retirement accounts that need to be divided between the parties. Reuters relates one particularly harrowing tale.
“How much could a retirement mistake cost you? Michelle Buonincontri, a certified divorce financial analyst, reviewed one case after the fact, that amounted to $110,0000 in taxes and penalties. The higher-earning spouse had withdrawn $250,000 from a 401(k) account to give to the other spouse, without what is known as a qualified domestic relations order (QDRO). The tax, at 39.6 percent, was $85,000, and the 10 percent early distribution penalty was $25,000.
The couple could have avoided that financial hit by hiring an attorney who specializes in QDROs to file an agreement in conjunction with their divorce. Moving the money directly into another retirement account with the proper paperwork, would mean no penalties and fees. Cashing it out could save money by shifting the distribution to the lower-earning person’s tax bracket.When it comes to pensions, complications abound, because every one of them has unique rules. If you do not execute the legal agreement properly, at the time of divorce, the consequences can be severe.
Chris Chen, a certified financial planner in Waltham, Massachusetts, said state pensions in his state may not allow for the divorced spouse who is due a part of the pension to collect any funds after a remarriage. He said this often escapes notice in Massachusetts, where 70 percent of divorces are DIY.
If you’re considering a DIY divorce, at least consult with an experienced divorce lawyer before making any decision. I offer free consultations in such cases and can tell you what you may be facing in doing it yourself. The only thing it will cost you is your time and it will end up being cheaper than trying to fix mistakes once you’re divorced.