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How couples can divide retirement accounts during divorce

On Behalf of | Apr 15, 2024 | Family Law |

Many people recognize that divorce could lead to financial instability. The divorce process itself can be expensive, and people have to arrange to divide their resources with a spouse. People considering divorce often worry about whether the end of a marriage might lead to a drop in their standard of living. Those nearing retirement age are often particularly anxious about the potential impact that divorce could have on their finances.

Retirement savings are crucial, as Social Security retirement benefits typically do not provide enough for the comfort of older adults. What must couples do to divide their retirement savings as part of a divorce?

Review marital contributions

Retirement accounts may have existed before someone married, and people may continue making contributions to them even after they legally separated from a spouse. It is, therefore, important to look over the records for each retirement account to determine the value of the marital contributions to the account and any separate contributions that occurred before or after the marital relationship. Determining how much of the accounts balance is potentially subject to division is a key step.

Determine how to address any particular account

There are several workable strategies available for those who want to account for retirement savings in property division negotiations. Sometimes, each spouse may retain ownership of specific accounts when spouses have multiple retirement accounts. Other times, they may use the marital value of the account to guide other important property division decisions. The spouses may even decide to directly divide one or more of their retirement accounts.

File appropriate paperwork

When the division of a retirement account is necessary, it is possible to achieve that split without risking large penalties and tax burdens. A qualified domestic relations order (QDRO) drafted by one of the lawyers assisting with the divorce can lead to a penalty-free division of retirement funds into two separate accounts. The timely filing of such paperwork is crucial for the protection of the spouse who is not the account holder. Lengthy delays might lead to an account losing value or even someone withdrawing part of its balance.

Those who understand how to handle important assets during property division proceedings can protect their assets during a divorce. Retirement accounts often require careful consideration due to their role in anyone’s future financial stability.