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Protecting retirement from taxes and fees

Most divorces in Texas involve some asset division, and this process can be expensive. Retirement accounts and savings are common assets for division, so it is important that they be handled correctly. Improperly splitting retirement accounts opens them up to heavy taxes and fees that will rapidly drain their value.

The first temptation is to raid a retirement account for cash needed to pay for the divorce itself. Most divorces are expensive, with the average cost being around $15,000. A divorce involving many assets or one that is heavily contested and therefore heavily litigated may cost much more. The majority of people don't have that kind of money lying around, and a person will face a double loss if they attempt to use retirement money. First, their early withdrawal will be subject to taxes unless they are already of retirement age. Then, they get hit again by the court. Since the retirement account is an asset, the court will impose a 10-percent penalty for taking value from it before the asset division process is finalized.

When it comes to dividing retirement accounts, the process must be handled carefully. Making changes to retirement accounts can come with more taxes and fees if done incorrectly. Retirement accounts are protected from taxation as long as they are handled properly on the divorce paperwork. A Qualified Domestic Relations Order allows certain plans, such as 401(k)s and 403(b)s, to be rolled into each individual's separate plan without taxes or fees.

It is important to include all such financial assets, including retirement accounts and other forms of investment, on the divorce agreement. There is plenty of room for negotiation on community property division. An attorney may be able to help a client with the asset division process to make a fair determination. It is almost always better to reach an agreement about asset division outside of court.

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Bruce Turner

In addition to his law degree, Bruce Turner has a master's degree in tax law and is Board Certified in Commercial Real Estate Law by the Texas Board of Legal Specialization.

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Turner, Bruce E.
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Bruce Turner with Bennett, Weston LaJone & Turner, P.C.

Attorney Bruce Turner is located in Dallas and represents people and businesses throughout DFW and the Metroplex, including Denton, Carrollton, Lewisville, Flower Mound, Farmers Branch, Irving, Las Colinas, Corinth, Highland Village, The Colony, Plano, Frisco, Allen, McKinney, Mesquite, Grand Prairie, Garland and Grapevine as well as Collin County, Denton County and Dallas County in Texas.

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