One of the most common concerns people raise when preparing for divorce is the potential impact on their long-term financial plans. The end of a marriage can be expensive and might force someone to make major adjustments to their plans for life. People often worry about losing the home where they live or their retirement savings. These resources often represent a substantial amount of someone’s personal wealth and are a key source of financial stability.
The uncertainty of property division matters in a divorce can leave people feeling trapped in an unhappy marriage because they don’t want to sacrifice their future stability. Those contemplating divorce may even delay filing specifically because they worry about their ability to retire after ending their marriage. Yet, retirement savings are not always at risk when people divorce.
Some contributions are likely subject to division
People generally need to disclose their retirement savings during a divorce and may need to share them with a spouse. The timing of contributions to retirement savings accounts can have a major impact on whether someone’s resources are vulnerable to division when they divorce or not.
Unless someone already has a prenuptial agreement or postnuptial agreement with their spouse setting aside retirement savings as separate property, deposits that they made during the marriage are likely subject to division. Although the account itself may be in the name of just one spouse, the deposits represent marital income that belongs to both spouses.
Thankfully, while spouses do often need to divide at least some of their retirement savings, they can usually avoid penalties and taxes. Couples can draft and sign qualified domestic relations orders (QDROs) in accordance with the property division decree entered by the courts. When properly executed, a QDRO can protect people from the penalties and taxes that the government typically imposes for premature withdrawals from tax-sheltered retirement savings accounts.
In cases where someone’s top priority is the preservation of retirement savings, there may be ways for them to achieve that goal. Someone who is willing to make property division concessions with other resources can potentially negotiate to retain much or even all of their retirement account(s) during divorce.
Identifying the resources that are the most important during divorce proceedings, and seeking legal guidance accordingly, may help people achieve their goals and plan for the best future possible.
