Spousal support is one of the issues that can be contentious in a divorce in Massachusetts. This can be especially true in cases of divorce after a long marriage, when the amount paid to a former spouse can be the cause of long negotiations that sometimes end with a court being asked to decide the amount and duration of spousal support. In addition to monthly payments that are common in such situations, in some cases a lump sum amount can be paid in the form of spousal support.
When a lump sum payment is made, it often comes from a qualified plan. This type of plan was the center of one recent case that may be of interest to our readers in Massachusetts. In it, a man withdrew more than $52,000 from his qualified plan to pay his soon-to-be ex-wife a spousal support amount ordered by their family court.
However, the man failed to use a common family law tool called a Qualified Domestic Relations Order (QDRO). A QDRO calls for the withdrawal to comply with certain rules that would allow it to avoid some tax penalties. The rules included the need to have the payment made directly to the former spouse as opposed to the owner of the qualified plan.
Because the man in this case failed to comply with the federal rules, he found that he owed back taxes and penalties that totaled 10 percent of what he withdrew. Had he complied with the QDRO rules, he may not have had to pay this amount. Thus, those in our state who are going through a divorce may do well to review all applicable laws as they navigate the world of divorce and payments for issues such as spousal support.
Source: forbes.com, "Penalty On Qualified Plan Withdrawal To Pay Alimony," Peter J Reilly, Nov. 10, 2012