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What you need to know about divorce and your retirement assets

On Behalf of | Sep 13, 2023 | Divorce

Your divorce could be the largest financial transaction of your life. And how you and your spouse split your marital assets will have a significant impact on what your future will look like for years to come. For older individuals, this can be a scary prospect, as they simply don’t have the time needed to rebuild their wealth. That’s why in these instances it’s critically important that you know how to protect your retirement assets during your divorce and its corresponding property division process.

How to protect your retirement in your divorce

Your retirement assets are probably housed in multiple accounts. Here’s how some of them will be addressed in your divorce:

  • 401(k): Typically, anything that you contributed to your 401(k) prior to your marriage, as well as any gains that you saw prior to your marriage, will be yours to keep. However, anything that you contributed to your 401(k) account after your marriage and the gains seen from those contributions will likely be divided. Here, the assets will be divided evenly, but you’ll need to get a qualified domestic relations order to split these assets without incurring a penalty. Of course, you might be able to negotiate a different outcome with your spouse, especially if you both have similar amounts in your individually held retirement accounts.
  • IRAs: The assets in your IRAs will also be subjected to property division. Depending on your circumstances, you might want to find ways to negotiate an outcome that allows you to keep a larger share of these assets, especially if you need them for financial stability once it comes time for you to divorce.
  • Pensions: How your pension is divided in your divorce is going to depend on a number of factors. This includes the terms of your specific pension, so you’ll want to consult your plan to ensure you have a clear idea of how these assets will be handled in your divorce. Again, though, it might be wise for you to find a way to negotiate your divorce in a way that allows you to retain full access to your pension benefits without compromising them in any fashion.

What to consider when negotiating retirement assets

You have a lot to think about when you’re dividing your marital assets, which is why you need to take a holistic look at your situation to find the course of action that’s right for you. Here are some issues that you’ll want to assess as you figure out how to negotiate retirement assets in your divorce:

  • Taxes: There are tax implications to some actions that you take in your divorce, especially if you mishandle your retirement assets. So, consider what those tax consequences will look like in your case and if they’re worth taking on in light of what you’ll be getting out of the proposed settlement offer.
  • Stability: The type of assets that you get out of your divorce will have a direct impact on your stability. Be sure to focus on what you need in the long-term as opposed to limiting your view to the immediate needs confronting you.
  • Your children: If you’re older, then you’ve probably already thought about estate planning. The assets that you get out of your divorce can play a significant role in your ability to provide the long-term support to your loved ones that you want to give them.

Don’t be afraid to build your divorce legal strategy

Given the emotions involved, many people are hesitant to dive into their marriage dissolution and take control of the situation. But that’s exactly what you need to do if you want to secure the outcome that you deserve. So, as you ready yourself for your divorce, be prepared to embrace the process and learn more about what you can do to position yourself for a successful outcome.