Should You Choose The Bank Or Retirement Account?

divorce retirementBy Jennifer M. Paine

Divorce Lawyer, Cordell & Cordell

A bank account and a retirement account may have the same balance, but that does not mean they have the same value.

In the pursuit of a quick settlement with liquid assets, and hoping to avoid an expert’s fees, some guys will swap a bank account for a retirement account.

The problem is $50,000 in the bank now is not the same as $50,000 in a retirement account now.

For one thing, to the extent you can access the retirement account, usually you must pay penalties and taxes for making a withdrawal.

For another, there may be hidden costs, such as a loan in repay-status, tied to that account.

On the other hand, a future stream of income is usually more valued than cash.

It’s worth a meeting with a CPA or other specialist to have those accounts valued. At a minimum, you need to know how much a retirement account you or your spouse intends to liquidate is worth after paying taxes and penalties. You should also figure out who will be hit with the tax bill and account for that in your divorce settlement.

This is called “tax effecting,” meaning that we figure out how much the spouse will have to work with after paying taxes. It’s this figure, not the raw account balance, that we compare to the bank account.

 

Read the other divorce articles in our retirement advice series:

 

Jennifer M. Paine is an Associate Attorney in the Detroit, Michigan office of Cordell & Cordell. She is licensed to practice in Michigan, and has been admitted pro hac vice in Illinois, Ohio, and the United States Court of Federal Claims.

Ms. Paine received her BA in English and Mathematics from Albion College and graduated Summa Cum Laude. She received her Juris Doctorate from MSU College of Law and graduated Summa Cum Laude.

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