Divorce is hard enough, but making the wrong financial moves can make it even worse.

Hi, I’m Hunter Brockway, founder of Boca Retirement Strategies. We guide people to a stress-free, successful retirement with more money and fewer taxes.

Dividing assets in a divorce is complicated, and if you mishandle retirement accounts, it can cost you big time in taxes and penalties. Here’s how to avoid the most common and costly mistakes when splitting retirement accounts in a divorce.

Step 1. Avoid IRA tax bombs. Mistake? Simply withdrawing funds from an IRA and handing them to your ex. What to do instead? Ensure the marital settlement agreement (MSA) or divorce decree clearly states who gets what. Provide a copy of this agreement to your IRA custodian to facilitate a tax-free transfer. DO NOT withdraw the funds yourself. This will be treated as a taxable distribution.

Step 2. Qualified plans require a QDRO. The mistake here is assuming that a 401(k) plan, pension, or other workplace plan follows the same rules as an IRA. What to do instead? A divorce decree alone is not enough to split a qualified plan. It requires a qualified domestic relations order (QDRO). The QDRO must be filed with the plan administrator before any funds are split. Some plans allow lump sum distributions while others require you to wait for your ex-spouse’s retirement.

Step 3. Plan for tax and penalty free transfers. The mistake here is not understanding the difference between an IRA transfer and a QDRO distribution. What to do instead? If you inherit part of an IRA, transfer the funds directly to your own IRA to avoid taxes and penalties. If you receive 401(k) funds under a QDRO, you can take a distribution before age 59½ without a penalty, but if you roll it into an IRA and withdraw later, the 10% early withdrawal penalty applies.

Step 4. Update your beneficiaries ASAP. Forgetting to update your beneficiary forms is a huge mistake. What to do instead? Retirement accounts do not follow your will. Whoever is named as your beneficiary gets the money. Countless cases exist where ex-spouses received unintended inheritances because the beneficiary was never updated. Update all of your accounts immediately, including life insurance, 401(k)s, IRAs, annuities, bank accounts—everything.

Step 5. Reassess your retirement financial plan. A big mistake is not adjusting your retirement plan after a divorce. What to do instead? Divorce can drastically change your financial future, your income, and your expenses. Your long-term goals may need to be adjusted. Re-evaluate your retirement savings, tax strategies, social security planning, and investment allocations. A financial advisor can help you rebalance your portfolio and adjust your financial plan for this new chapter of your life.

Some final thoughts and action steps: Divorce is never easy, but making the right financial moves can save you from unnecessary stress and costly mistakes. Take action. If you’re going through a divorce or have recently finalized one, don’t navigate this alone. Schedule a call at BocaRetirement.com to create a smart financial strategy that protects you and your future. Go to our free assessment tab, select a date and time that works for you, and we’ll call you then.

Bye.