Divorce negotiations often focus on marital property that has the most financial value and (if applicable) the children in the family. For older couples, retirement accounts can easily become the most significant property division concern in the mix as they prepare for divorce. Even middle-aged working couples may feel intensely insecure at the prospect of losing retirement savings during a divorce.
With the exception of a marital home or a family-owned business, the retirement savings that people have set aside during their marriage will likely be the most valuable assets they share with each other. Figuring out “who gets what” when it comes to retirement funds can be a challenging – and potentially contentious – matter of debate.
Couples often divide their savings
A retirement account may technically be in the name of one spouse, but that does not mean that they can claim the account as separate property in the divorce. A significant portion of the balance accrued in the account will likely be from during the marriage. Any contributions made during the marriage will represent marital income unless there is a pre-existing agreement between the spouses stating otherwise.
At least the portion contributed during the marriage will likely be subject to division. Thankfully, if these spouses do divide the account or a judge orders them to, they can potentially use a qualified domestic relations order (QDRO) to avoid penalties and fees when splitting one retirement account into two separate accounts.
Spouses can divide the value rather than the account
Often, spouses can negotiate a property division arrangement that doesn’t require the division of every asset separately. Spouses can also put plans in place for the division of a pension that may not be in an account that they can divide in the divorce.
There is no specific rule that determines who receives retirement accounts when couples divorce. Retirement accounts are often at least partially marital property and will therefore be in play during the property division process, but the exact way people divide those savings will depend on their agreements or the decision of a family law judge.
Identifying and addressing the most valuable assets someone shares with a spouse can help them to construct a solid financial foundation when strategizing with a legal professional in preparation for divorce negotiations or litigation.