One significant hurdle that many couples face during divorce is dividing their retirement accounts. The fate of these accounts can impact not just their finances after divorce but also their comfort in their later years. What should you know about the challenging process of dividing your retirement savings?
What happens to your retirement savings in divorce?
Georgia is an equitable distribution state. This means that couples jointly own any assets acquired during the marriage, and the court will divide this marital property in a way that is fair or “equitable.”
It is important to note that “equitable” does not always mean a 50/50 split. Instead, the courts look at several factors to determine what is fair. Your income, your needs, the amount of separate property you brought into the marriage and other factors may all influence what the court decides is fair.
What steps should you take when dividing your retirement accounts?
When working toward a fair arrangement, you should take several steps:
- Identify all retirement accounts – Both parties should disclose all retirement assets. In some cases, one party may reach out to a forensic accountant to uncover any hidden assets.
- Determine marital vs. separate property – Marital property only includes the portion of retirement assets accrued during the marriage. Any contributions made before the marriage or after the separation usually fall into the category of separate property.
- Valuation of the assets – This step involves determining the current value of the retirement accounts. This can be straightforward for defined contribution plans but may require an actuary or other financial expert for defined benefit pension plans.
- Determine whether you can negotiate a settlement – Couples can agree on how to divide their assets through negotiation or mediation.
- Consider litigation – If couples cannot reach an agreement on their own, a judge will decide what happens to your retirement accounts.
A family law attorney can be an important guide at every stage of this process. Their negotiation experience and knowledge of the law can help you create a legal strategy that protects your retirement accounts during divorce.
Will dividing your retirement savings result in a penalty?
There are usually penalties for early withdrawal from your retirement accounts. However, a legal document called a Qualified Domestic Relations Order (QDRO) can help. The QDRO allows funds to be distributed to a non-employee spouse (now termed the alternate payee) without the usual penalties for early withdrawal. However, taxes will still apply.
While dividing your retirement savings can be challenging, it is possible to protect your future financial health as you enter the next chapter of your life.
