Property accumulated over many years of marriage can lead to a high asset divorce. Addressing these retirement assets is extremely important but may be particularly complicated.
Spouses should collect all financial data on marital assets or their own separate property. For property division, this can help determine whether one spouse made a premarital contribution. Keeping documents can also be used to follow performance of investments and account balances over the years.
Nonworking spouses have the right to a portion of their ex-spouse's Social Security benefits. Some retirement accounts, even in the name of one spouse, may be divided among both parties if their intent was to share the account when they got older.
Qualified or nonqualified plans, such as traditional or Roth individual retirement account and 401(k) plans, operate under different tax rules for their division or withdrawals. Some withdrawals and division may lead to serious taxes and penalties. Spouses should review these rules or seek information from the providers of these plans.
A qualified domestic relations order may also become important. A QDRO is a court order contained in the divorce agreement naming the spouse who is entitled to part of the other spouse's retirement plan.
Once the divorce is finalized, the former spouses should update their financial account beneficiaries. Failure to update these accounts can lead to existing beneficiaries, such a former spouse, receiving benefits regardless of the divorce decree.
After divorce, a couple's total assets that supported their marriage are divided. Spouses should decide whether they should try to keep or trade certain assets during settlement. For example, keeping the family home may be emotionally fulfilling but become a major financial expense in the future. A part-time job may help rebuild assets that were lost in the divorce while a budget may help with their wise use.
An attorney can help a spouse negotiate a fair and reasonable divorce that protects their financial interests. They can also recommend legally and financially sound options.
Source: MarketWatch, "Money milestones: A divorce doesn't have to be the end of your retirement funds," By Alessandra Malito, Oct. 10, 2017