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Retirement nuance in divorce

When Kentucky couples go through a divorce, the first thing on their minds is likely getting through the immediate future, but ignoring the impact a divorce can have on one's retirement savings is a mistake.

As Financial Planning reports, dividing the retirement funds incorrectly can cheat one party out of their largest asset. The division of an IRA account, specifically, must be done carefully to avoid extra taxation and financial penalties. Getting professional help to split an IRA is helpful because even in an amicable divorce, a mistake can make both parties lose out on their hard-earned money. A recent case before the U.S. Tax Court included just such a scenario, and serves as a reminder that splitting an IRA before the divorce is finalized can cost 10 percent in tax penalties. The court found against the couple trying to divorce with little conflict and made them pay the 10 percent in taxes.

There are also regulations on Social Security that divorcing couples should be aware of. As Investment News explains, unless a couple is married for 10 years they have no claim to the ex-spouse's social security earnings record. However, there are even complicated rules concerning the ten-year rule, for couples who have divorced and re-married and divorced again. For these couples, if the remarriage happens during the next calendar year following a divorce. This means that if a couple is married on January 1, 2000, and divorced on February 1, 2005, then re-marries on May 1, 2006, and divorces on January 1, 2013, they are able to combine all the years, yet if the remarriage did not occur until 2007, they would not meet the requirement.

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