CDS CDS Post-Divorce Planning & Support 1 — Questions and Answers
Question 1: What is a Qualified Domestic Relations Order (QDRO) and why is it important post-divorce?
- A court order awarding the marital home to one spouse
- A legal order that divides retirement plan benefits between divorcing spouses without triggering early withdrawal penalties (Correct answer)
- A financial document authorizing alimony payments from a 401(k)
- A tax filing requirement for divorced individuals
Correct answer: A legal order that divides retirement plan benefits between divorcing spouses without triggering early withdrawal penalties
A QDRO is a court order that legally divides qualified retirement plan benefits between divorcing spouses, allowing the transfer without early withdrawal penalties or immediate tax consequences.
Question 2: After a divorce is finalized, which beneficiary designations should be reviewed and updated immediately?
- Only workplace retirement accounts
- Life insurance policies, retirement accounts, and any payable-on-death accounts (Correct answer)
- Bank savings accounts only
- Beneficiary designations do not need updating after divorce
Correct answer: Life insurance policies, retirement accounts, and any payable-on-death accounts
Life insurance, retirement accounts, and payable-on-death accounts pass directly to named beneficiaries and bypass the divorce decree, so they must be updated promptly after divorce.
Question 3: What is the primary purpose of an alimony (spousal support) order post-divorce?
- To penalize the higher-earning spouse for ending the marriage
- To help the lower-earning spouse maintain a reasonable standard of living and achieve financial independence (Correct answer)
- To replace child support payments for adult children
- To compensate the spouse who filed for divorce first
Correct answer: To help the lower-earning spouse maintain a reasonable standard of living and achieve financial independence
Alimony is designed to address economic disparities between spouses and help the lower-earning spouse maintain financial stability while working toward self-sufficiency.
Question 4: Which type of alimony is typically awarded for a set period to allow the recipient to become financially self-sufficient?
- Permanent alimony
- Reimbursement alimony
- Rehabilitative alimony (Correct answer)
- Lump-sum alimony
Correct answer: Rehabilitative alimony
Rehabilitative alimony is time-limited support intended to help the recipient spouse gain education, training, or work experience to become financially independent.
Question 5: Under the Tax Cuts and Jobs Act (TCJA) of 2017, how is alimony treated for tax purposes for divorces finalized after December 31, 2018?
- Alimony is deductible for the payer and taxable income for the recipient
- Alimony is not deductible for the payer and not taxable income for the recipient (Correct answer)
- Alimony is taxable for both parties
- Alimony treatment is unchanged and remains fully deductible
Correct answer: Alimony is not deductible for the payer and not taxable income for the recipient
For divorces finalized after December 31, 2018, the TCJA eliminated the alimony deduction for the payer and removed the income inclusion requirement for the recipient.
Question 6: What does COBRA coverage allow a divorced spouse to do regarding health insurance?
- Permanently remain on the former spouse's employer health plan
- Continue the former spouse's employer-sponsored group health insurance for up to 36 months at their own cost (Correct answer)
- Transfer the employer plan to a new individual policy at no charge
- Obtain Medicare coverage immediately after divorce regardless of age
Correct answer: Continue the former spouse's employer-sponsored group health insurance for up to 36 months at their own cost
COBRA allows a divorced spouse to continue coverage under their ex-spouse's employer group health plan for up to 36 months, though they must pay the full premium plus an administrative fee.
CDS CDS Post-Divorce Planning & Support 1
What is a Qualified Domestic Relations Order (QDRO) and why is it important post-divorce?