People who have enjoyed a higher standard of living throughout marriage may have concerns about divorce. After all, they may have more marital property to divide. Often, people worry primarily about assets that may influence their current and future financial stability.
Retirement savings are often a top priority in divorce proceedings. Sometimes, one spouse has accrued pension benefits during the marriage. Other times, they may have made investments or contributed to a 401(k) to fund their golden years. Those retirement savings aren’t just one of the biggest contributors to the marital estate. They can also be a source of conflict when spouses divorce.
Both spouses may have a right to those resources
It is quite common for one spouse to assume that they have sole control over the retirement account. Particularly when they have a pension or 401(k) directly connected to their employment, they may expect to retain those assets as their separate property when they divorce.
Even if only one spouse contributed to the account, they did so using marital income. From the family courts’ point of view, contributions to the retirement savings account during the marriage are probably marital property that the spouses have to divide when they divorce.
The courts look at the source of the funding for the account, not just the name on the account. Deposits made during the marriage are subject to division. Deposits made prior to marriage or after the spouses separate are likely not at risk of division.
People may worry that they have to pay penalties or might face a massive increase in taxes due to dividing their retirement savings in a divorce. Thankfully, that usually isn’t the case. So long as spouses follow the right process, which entails filing specialized paperwork and creating a second retirement account instead of simply withdrawing the funds from the shared account, they can theoretically avoid all taxes and penalties that could diminish how much they have set aside for their golden years.
Learning about which assets are subject to division can help people to make informed decisions as they prepare for property division negotiations or for family court. Ultimately, retirement savings are often at risk of division unless spouses can reach an agreement that preserves them.