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Retirement and divorce: What you need to know

Divorce can have a major impact on a person's retirement savings, especially for those nearing retirement age. That's why it's important to plan carefully during the divorce settlement process.

In order to minimize the impact a divorce has on your retirement savings, a divorce financial specialist and retirement coach said there are a few tips to keep in mind.

First, you may or may not know that divorcing couples have a special opportunity to withdraw savings from their spouse's traditional 401(k) or 403(b) retirement account without the 10 percent withdrawal penalty that usually applies.

(Note: A couple of conditions must be met -- the funds must be assigned to you in qualified domestic relations order (QDRO) and you must be under age 59½.)

But don't consider this a free ticket to cash in as much of the retirement assets as possible, the financial expert said. Only the amount absolutely necessary for divorce expenses should be withdrawn, she said, and the rest should remain in the bank to support you in retirement.

Next, the financial expert said that many people consider the marital home to be a valuable asset in the property distribution. However, it's important to place an accurate value on the home before trading financial accounts for it.

As we have learned over the past decade, housing prices are far from set in stone, so it's hard to know exactly what your home is going to be worth in the future. It is also difficult to cash in your home for retirement money, even if you do choose to downsize, the financial expert said.

Ultimately, retirement is an issue that you will want to consider carefully with your divorce lawyer during the settlement process. Afterall, while you might not be needing it now, your retirement savings will likely have to support you for 20 to 30 years.

Source: NY Daily News, "Money Pros: Don’t let divorce rip apart your retirement nest egg," Marilyn Timbers, Aug. 14, 2013

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