Divorce settlement

[susieq]

"New client" called this AM. Following are the facts

Accident in 2002, applied for SS disability, just approved in April 07
She received $28,000 in SS retroactive plus around $800 per month forward

Husband (married him 3 times) was into drugs. (Some people make very bad choices. That's not our profession though ) Divorce was final in Jan 07

She signed QDRO papers (have not seen the divorce docs yet) Her settlement consisted of
1) 52,000 - 1/2 the value of their marital home
2) 27,500. - When they divorced the second time he was suppose to pay her this - did not - she put a lein on the house so now she collected
3) 57,500 - balance determined by attorneys/judge

Total $137,000. He was able to take the funds out of his "supplemental fund" - he is a millwright and was allowed to do this.

They took out 20% in tax - there were two distributions in 2007. She was told she would receive a 1099R.

Do I just look at this as a distribution from a retirement plan being taxed without penalty or is there a chance that this is considered property settlement and the tax is little or none? She has been supported over the last several years by family and friends because of her disability and his drug connection and refusal to pay anything for her. She has been repaying them back and has spent most of the money (of course) HELP !!!!

[BOB W]

I believe the 1099R should be in the husband's name not her's. He used those funds to pay off a marital settlement( non taxed).

You mentioned two distributions, by the husband? 20% withholding in addition to the $137,000?

[susieq]

Divorce Settlement

The $137,000 Was The Gross Amount - They Paid Her In Two Payments (116 And 21 Thousand Gross With Around 27,600 Withheld.

When A Distribution Is Part Of A Qdro Plan Within The Divorce Wouldn't The 1099r Be In The Recipients Name?

One Other Item That I Just Thought Of - With Her Ss Disability Payment, The Ssa Paid An Attorney $5,300. Is This Amount Included As Income To Her On The Form She Gets In Jan From The Ssa?

[BOB W]

Unless I have your info wrong, this is a bad deal for your client. They swithed non-taxable marital settlement to a taxable qudro. The Husband should of been required to make the distribution in his name and payover the proceeds (137,000) to the wife( taxes should of been his problem). If she was entitled to his plan that would be another issue over and above the non-taxable issues.

I hope someone else chimes in here> am I off base here?

[BOB W]

Susieq> I know my post doesn't answer your question and creates more problems then it solves. Sorry!

[joanmcq]

No Bob, you are right if the facts are as stated. Susie, a QDRO is used to split a pension plan owned by one spouse into two, and she would be taxed on her part of the pension. If he had to take funds out of his pension to pay her monies that had nothing to do with the pension, that should have been his tax problem, not hers. Since there were two distributions, is it possible that it could have been a mixture of the two; that the final $57,500 was in part a split of marital pension assets?