DIVORCE HQ Newsletter Archives

DIVORCE HEADQUARTERS NEWSLETTER Issue #12, June 2001

We are continuing to grow with every passing day. As we grow we continue to add new features. Our latest addition is our Frequently Asked Question (FAQ) page. It is a state specific list of divorce related questions and answers submitted by the attorneys, mediators and divorce service professionals listed in our directories. Check it out at http://www.divorcehq.com/faq.html

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Food for Thought

"Nothing last forever...not even your troubles"
Arnold Glasgow

In this Issue:

More Custodial Fathers
Divorce and Retirement Assets:
Getting the Money Without Getting the 10% IRS Penalty Tax
by David Twenhafel, CFP, CDP
Divorce Humor

1. More Custodial Fathers

According to an article in the Monday, June 18, 2001 issue of the San Jose Mercury News, single fathers with primary custody of their children, rose about 50 percent from 1990 to 2000. The article went on to state, "single fathers make up at least one sixth of the country's single parents.

"It is estimated there are about 2 million single fathers with primary custody. Of those, more than 900,000 were divorced. Dr. Warren Farrell, a San Diego resident who wrote the book 'Father and Child Reunion' (Tarcher Putnam Penguin, 2001) states that "single fathers are more likely to have the mother actively in the picture, sharing involvement with the children while single mothers more often go it alone."

The Census Bureau reported that just 38 percent of single fathers received child support, compared with 60 percent of single mothers. The bureau also reported that the average annual amount of child support as of 1997 was $3,300, and was the same for single fathers and single mothers.

The following is an excerpt from an article submitted by one of our professional members. For full text of all articles visit http://Divorcehq.com/articles.html

2. Divorce and Retirement Assets:
Getting the Money Without Getting the 10% IRS Penalty Tax
by David Twenhafel, CFP, CDP
People getting divorced often need more cash than is readily available. There may be one-time expenses related to the transition, such as making a down payment on a new house or paying attorney's fees. There also may be an ongoing need for more cash flow after the divorce than one's salary, child support, and/or alimony can provide. The lack of money can delay or even aggravate the negotiations over the divorce settlement - which may only further reduce available cash.

Yet some divorcing couples have plenty of money - in the form of retirement assets -- which could solve these problems. In my practice as a certified divorce planner, I often find that people do not even consider using these assets for pre-retirement needs. There seems to be two reasons. The first is simple mind-set. People think retirement assets are only for retirement. And yet there is no objective reason why that must be the case. The second reason is more concrete. People believe - mistakenly -- that taking distributions from retirement assets prior to age 59½ will result in a 10% penalty tax to Uncle Sam.

As it happens, there are at least four ways to access retirement savings prior to age 59½ without being subject to the 10% penalty tax for early withdrawal. One method is available only to divorcing couples while the other three can be used by anyone. These methods can help some divorcing couples find a mutually agreeable settlement that would otherwise elude them.

What do I mean by retirement assets? Most IRAs (not the Roth or Education IRAs) and "qualified" employer-sponsored defined contribution retirement plans. These include the 401(k), 403(b), money purchase, Keogh, SEP-IRA, SIMPLE IRA, and SAR-SEP plans. For the sake of simplicity, I'm going to use the term 401(k) in this article for all employer-sponsored plans.

I also want to be specific that these four methods avoid only the 10% penalty tax for early withdrawal. Money withdrawn from a retirement account is taxable the year it is withdrawn and there is no way around that.

The laws on retirement assets generally hold that withdrawing retirement assets prior to age 59½ will result in a 10% penalty tax. For example, a 50-year-old who takes $20,000 from an IRA would pay a $2,000 penalty tax as well as the income taxes on the entire $20,000.

ABOUT THE AUTHOR

David Twenhafel, is a Certified Financial Planner, and a Certified Divorce Planner. He provides financial planning services to people who are in the process of divorce. His offices are located in Rockville, MD. He is currently licensed in the following states: Maryland, Virginia, District of Columbia, Florida, New York, New Jersey, Texas, Georgia, Massachusetts, and Wisconsin.

3. HUMOR

With all that's been in the news lately about the bigamy case in Utah, many of us who are divorced or getting divorce are just scratching our head in wonder. I think Oscar Wilde summed it up best when he said "Bigamy is having one wife too many. Monogamy is the same."