Divorcing couples have to divide their shared property. Not only do they have to separate their physical assets and decide who lives in the marital home, but they also need to address their financial resources. Successful professionals could have six figures or more set aside in retirement savings accounts. They likely have to address the amounts that they accumulated during the marriage as part of their divorce negotiations.
How can divorcing couples appropriately address retirement resources during divorce?
By splitting the accounts
Maybe each spouse has a 401(k) account in their own name attached to their employment. Perhaps the spouses have funded a Roth IRA in addition to one of them accumulating 401(k) funds.
Spouses can have an attorney draft a qualified domestic relations order (QDRO) to divide those savings into two separate accounts. The proper use of a QDRO can protect people from income tax consequences and a penalty that further reduces their savings.
By offsetting the savings
Particularly when spouses try to negotiate their own settlement, they could avoid dividing their retirement savings. Instead, they can determine the marital value of their savings.
Then, they can use that value to balance out decisions related to other marital property or responsibility for marital debts. People in high-asset marriages preparing for divorce often face a more challenging property division process due to resources like retirement savings accounts.
Retirement accounts are among the valuable assets that spouses can protect with an effective divorce strategy. Those with retirement resources and other financial resources may need help preparing for complex property division proceedings, and that’s okay. Properly addressing retirement savings can set people up for a comfortable life after a high-asset divorce.