For some people, retirement savings are a source of personal pride. The balance in the account shows someone’s ability to defer short-term gratification for long-term financial benefit. The amount someone can save is also a reflection of their professional success, as only those who earn a competitive wage can save significant amounts for their retirement years.
When you start thinking about divorce, you will naturally have strong feelings about dividing your property with your spouse. Dividing retirement accounts can be a particular source of anxiety and financial risks. Handled improperly, the division of your retirement savings could diminish the balance you hold through penalties and taxes.
What are some of the ways to handle your retirement accounts in your divorce?
You can actually split the accounts
Either through an agreement and a court-approved settlement or a property division order created by a judge, you and your ex can actually divide the individual retirement accounts you have.
Even accounts held in the name of one spouse are subject to division in the divorce proceedings, so each spouse can potentially claim a share of all of the various accounts the couple has established throughout the marriage. When done the right way, this process won’t result in penalties that reduce your savings.
You can consider the value of the accounts
Perhaps one of you feels very strongly about retaining a particular retirement account or retaining a pension. Spouses negotiating their own property division settlement can use the estimated value of the various retirement accounts to balance out other assets, like the marital home. Rather than splitting any individual account, the spouses use the value of those accounts to justify decisions regarding other assets.
You could reach a support arrangement
In some scenarios, there is not a fixed financial value for a pension or retirement account. Other times, it may not be practical to divide the account at the time a couple divorces.
Spouses can agree to have one spouse pay the other support so that they receive their share of the pension after the divorce. There are some complications with this approach, including the possibility of the spouse would receive the pension dying and leaving their ex without a claim.
Exploring different ways to handle your retirement savings can help you negotiate a favorable property division settlement in your divorce.
