Ask a certified divorce financial analyst (CDFA) and they'll likely have horror stories about the danger of couples trying to get divorced without a lot of legal entanglement while splitting up retirement assets. But the dangers of doing this the wrong way in a DIY situation include hefty tax bill and penalties. Or worse, one ex-spouse could end up with nothing at all. Reuters spoke with one CDFA who saw a higher-earning spouse take $250,000 out of a 401(k) to give to a lower-earning spouse as part of their DIY divorce agreement — and the higher earner got hit with taxes and penalties of $110,000 because it was done incorrectly! Pensions are particularly trick to split up because each plan has its own rules. As just one example, Reuters notes that state pensions in Massachusetts forbid the spouse owed a part of the pension from collecting any funds after remarriage.
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