It typically takes decades to accumulate sufficient savings to retire comfortably. Some spouses accrue pension benefits with their employers. Others may set money aside in tax-deferred retirement accounts, like 401(k)s. Still others might use Roth IRAs or similar accounts to save for their golden years.
The longer people have set money aside and the closer they are to retirement age, the better the chances are that their retirement savings could be worth six figures or more. It is only natural for those going through a divorce to prioritize higher-value assets during divorce negotiations or litigation.
Which spouse is more likely to keep the retirement savings when married couples divorce?
Savings may be part of the marital estate
Most people learn that their retirement savings are potentially subject to division. Even in scenarios where spouses have established separate accounts for retirement savings, at least some of what they have accrued in those accounts may be subject to division when they divorce.
Without a marital agreement stating otherwise, any contributions made during the marriage are most likely subject to division in the event of a divorce. The courts care more about the timing of when people made contributions to the account rather than whose name is on the account.
In some cases, spouses can directly divide retirement savings. Certain accounts do not require any special paperwork, while others might. A 401(k), for example, might be subject to early withdrawal penalties. Spouses may need to draft a qualified domestic relations order (QDRO) to avoid penalties and tax consequences triggered by pre-retirement withdrawals from an account.
In scenarios where spouses work cooperatively to negotiate property division terms, it may be possible to avoid the division of a retirement savings account. So long as the other spouse receives property worth an equivalent value, one spouse can potentially retain the entire retirement account rather than splitting it when they divorce.
Financial stability during retirement is one of the many issues that couples must address as they prepare for property division matters in a pending divorce. Learning more about the rules for property division can help people as they negotiate with spouses and push for reasonable property division terms.