Couples thinking about their future together often save to buy a home and then begin saving for retirement. Couples may enjoy multiple decades of retirement together if they both remain healthy. Having enough money set aside to live comfortably during retirement requires careful budgeting throughout much of the marriage.
Spouses may each have retirement accounts connected to their employment, or they may share an account that they both fund. Regardless of how they have set aside resources for retirement, those savings could become a point of contention as they prepare for divorce.
How can New York couples facing a divorce address retirement resources in their divorce negotiations?
Determining what they must share
Spouses may have begun saving for retirement before they married. A portion of their retirement savings may be the separate property of one spouse, while a portion of those savings may be marital property subject to division. A thorough financial review is often necessary to determine how much is subject to division in the divorce. Each spouse can potentially retain any separate savings they had prior to marriage, but they may need to divide whatever contributions they made during the marriage.
Using other assets
Frequently, spouses set specific financial goals as they begin the divorce process. One spouse may want to stay in the marital home, while the other may want to retain their retirement savings account. It is not technically necessary to divide every asset to reach a fair or equitable property division settlement. Couples can potentially use other high-value marital assets or marital debts as a way of balancing decisions when allocating retirement savings. Judges also have the authority to use other property or marital debts to offset the value of retirement savings in property division decrees.
Appropriately splitting accounts
In scenarios where dividing an account is the chosen solution, there is a process to follow. Spouses usually need to wait for the final property division order. Then, a lawyer can draft a qualified domestic relations order (QDRO) based on the property division decree. That QDRO can divide a single retirement savings account into two separate accounts without penalties or income tax consequences. If spouses properly draft, sign and execute a QDRO, they can preserve as much of the retirement savings account as possible despite dividing it pursuant to a divorce.
Recognizing that retirement savings are vulnerable to division can help people approach divorce negotiations with reasonable expectations. Sharing retirement savings does not necessarily mean that spouses have to accept penalties, taxes and other losses if they follow the right process.
