Divorce Financial Planning Guide

An honest framework for the decisions at hand. Not tax or investment advice — your specifics matter.

The single biggest decision: 401(k) vs house

• Retirement accounts are pre-tax (traditional) or after-tax (Roth) — their face value is misleading.
• $400K in a traditional 401(k) is worth roughly $260-300K after-tax in a 32% marginal bracket. $400K of primary-residence equity is worth closer to $400K after tax for most filers — IRC § 121 excludes up to $250,000 of capital gain for a single filer / $500,000 MFJ on the sale of a principal residence (with 2-out-of-5-year ownership and use tests).¹
• Trading "equal dollar amounts" is rarely an equal trade. Do the after-tax math.

QDRO mechanics

• A Qualified Domestic Relations Order (QDRO) under IRC § 414(p) / ERISA § 206(d) is how a 401(k) or other qualified plan gets split between spouses without triggering tax or penalty.²
• QDROs are plan-specific — each plan has its own form, fees ($500-3000), and processing timeline (60-180 days).
• Common mistake: assuming the divorce decree itself splits the account. It doesn't — a separate QDRO must be drafted, approved by the plan administrator, and filed with the court.
• IRA splits: do NOT require a QDRO. IRC § 408(d)(6) ("incident to divorce" transfer) handles IRA splits directly via a divorce decree or separation agreement, transferring to the recipient's IRA without tax.³

Alimony post-TCJA: the 2019 pivot

• For divorces or separation agreements executed before 12/31/2018: alimony is deductible to payer (above-the-line under former IRC § 215) and taxable to recipient (under former IRC § 71).
• For divorces executed after 1/1/2019: alimony is NOT deductible and NOT taxable income — all tax sits with the payer. The Tax Cuts and Jobs Act repealed §§ 71 and 215 for post-2018 divorces.⁴
• The same dollar amount of alimony means dramatically different after-tax results depending on which regime applies.
• Modification of a pre-2019 decree can preserve the pre-TCJA rules OR pull the decree into post-2018 rules depending on what is modified and how the modification order is worded. Don't modify without coordinated attorney + CPA review.

Social Security ex-spouse benefits

• Marriage lasted 10+ years? You can claim on ex-spouse's record — entitled to up to 50% of their PIA at your FRA (or reduced if claimed earlier).⁵
• You must be unmarried when claiming (remarriage after age 60 does not disqualify). Ex-spouse doesn't need to have claimed yet, provided you've been divorced 2+ years (the "independently entitled" rule).
• Ex-spouse's benefit is NOT reduced by your claim — SSA pays from the trust fund, invisible to the ex.
• Survivor benefits apply if ex predeceases you — up to 100% of their benefit if claimed at your FRA, reduced to 71.5% if claimed at 60.

The tax-filing cliff

• Year of divorce: file as single (or head of household if qualifying child) for the whole year if decree is before 12/31.
• Tax brackets compress dramatically: income taxed at 22% MFJ is taxed at 32% single at the same level.
• Plan for this — Roth conversions in joint years, capital-gain realization timing, estimated-tax recalculation in year 1.

Who to hire and who to fire

• Divorce attorney: legal process, custody, decree drafting.
• CDFA (Certified Divorce Financial Analyst): models the 20-year financial consequences of asset-division choices.
• CPA: tax-year transition planning.
• Avoid advisors selling product or earning AUM fees — conflict of interest is enormous when you're vulnerable.

Sources

1. IRC § 121 — Exclusion of Gain from Sale of Principal Residence ($250K single / $500K MFJ).
2. IRC § 414(p) — Qualified Domestic Relations Orders. ERISA § 206(d) parallel.
3. IRC § 408(d)(6) — IRA Transfer Incident to Divorce (no QDRO required).
4. Tax Cuts and Jobs Act (Public Law 115-97), § 11051 — Repeal of Alimony Deduction/Inclusion for post-2018 divorces.
5. SSA — Divorced Spouse Benefits (10-year marriage, 2-year rule).
6. Institute for Divorce Financial Analysts — CDFA Credential.

Divorce financial planning intersects federal tax, federal retirement-plan law, Social Security, and state family law. Verify jurisdiction-specific rules with qualified counsel.