How Divorce Can Have a Huge Impact on Your Retirement Savings
If you have a retirement account, there's a good chance that it's your largest asset. However, if you're considering a divorce, then you may be wondering if dissolving your marriage will damage your retirement savings.
This depends upon the type of retirement accounts you have. Because this subject is complex, it makes sense to explore how common types of retirement accounts are treated in a divorce.
This retirement income source frequently is the largest resource for retirees. If your marriage has lasted more than 10 years, then you may be entitled to collect benefits from Social Security based on your ex-spouse's account. As long as you are unmarried, aged 62 or older and your ex is entitled to benefits, federal law allows you to collect. Of course, this only makes sense if your ex is receiving an amount in excess of what you would receive on your own.
401(k)s, IRAs and Pensions
Federal and state law also may play a role in regard to how getting divorced affects your retirement. For instance, a 401(k) or 403(b) is governed by federal law, and this may affect how these accounts are divided. With IRAs, state law governs how these funds will be distributed. Pension benefits are rare in this age, but they are administered according to the employer's vesting schedule, which can widely vary from one firm to another.
Retirement Accounts: Marital or Separate Property?
If you were contributing to a retirement savings plan before you got married, then most courts will consider the premarital amount as belonging solely to you. However, any retirement funds that were contributed while you were married may be subject to being divided with your ex-spouse. If it's vital to you that your entire savings for retirement remain intact, then it may be possible to negotiate with your ex with regard to other valuable assets, like the family home.
If you and your spouse are thinking about splitting up, then it's wise to know that a Qualified Domestic Relations Order, or QDRO, may be in your future. This is a package of instructions detailing how a specific retirement account will be divided. Once approved by the court, the QDRO goes to the plan administrator to complete the division of funds.
If you're concerned about how divorce might affect your retirement savings, then it's sensible to call Sabra Law Group at (646) 472-7971.