The property division process that occurs during divorce can create a lot of uncertainty. If the spouses do not already have agreements with each other about the division of their assets and debts, they have to address their shared property during the divorce.
Spouses can either negotiate their own settlements or can ask the judge to apply the equitable distribution statute to their marital estate. People preparing for court often don’t know what to expect. Those negotiating directly with spouses may begin the process with unrealistic expectations. For example, they may expect to keep assets that they actually have to share or may try to lay claim to property that belongs solely to their spouse.
Retirement savings accounts are frequently a source of conflict during divorce. Who usually keeps the retirement savings when couples divorce?
Couples usually share their savings
Without a written agreement stating otherwise, the chances are good that retirement savings are largely marital property. The money that either spouse earns during the marriage is marital income, and any property they acquire with that income is marital property. Even if only one spouse has their name on ownership documents, both spouses usually have a shared interest in those marital assets.
A retirement savings account funded with income earned during the marriage is likely marital property. If one spouse started the account before getting married, they may need to review the account to determine how much of it is separate property and how much of it is marital property.
The marital portion of the account is subject to division. The spouses can either account for the value of the savings when dividing other property or can arrange to directly divide the retirement account. A qualified domestic relations order (QDRO) drafted by an attorney can allow spouses to divide retirement savings without increasing their taxable income for the year or risking a 10% early withdrawal penalty.
Dividing the account is often the fastest solution, but spouses can always negotiate other arrangements. One spouse might keep the retirement savings and allow the other to keep more home equity. The spouse hoping to retain their retirement account could also accept more marital debt to balance out the value of their retirement savings. Spouses may need help negotiating with one another, preparing for litigation or drafting the necessary documents to carry out property division orders.
Knowing what happens to higher-value assets can help people negotiate property division issues more effectively and prioritize the terms that are most important for their long-term financial stability. People who have saved for retirement often want to retain as much of their savings as they can to ensure that their divorce does not derail their plans for their golden years.