Splitting Up Retirement Assets During a Divorce – Everything You Need to Know

Retirement Assets Defined:

Retirement assets are assets that one uses to help fund a retirement. Examples of retirement assets include 401ks, IRAs, annuities, and pensions. Oftentimes, during a divorce, these assets are divided amongst the former spouses.

The Importance of Retirement Assets:

If you are going through a divorce, then retirement assets are one of the single most important assets to make sure that you get divided properly. This is because retirement assets like 401ks are often one of the single most valuable assets that a person owns.

Legal Entitlement:

In most cases, one spouse is legally entitled to receive a portion of their former spouse’s retirement assets. However, there are some circumstances in which a spouse might not be entitled to them. For example, if a couple had a prenuptial agreement that declared that one spouse cannot receive retirement assets from the other, then this could cancel out any legal entitlement.

Can Your Ex Refuse to Pay?

No, if you are legally entitled to receive retirement assets from your former spouse, then your ex cannot refuse to pay. If your ex tries to refuse to pay, then he could face punitive action from the courts.

Obtaining Access to Your Ex’s Retirement Assets:

If your ex agrees to give you the portion of his retirement assets that you are entitled to, then the process is relatively straightforward. You can either receive a lump-sum payment from his retirement account, or you can set up regular payments. However, if your ex refuses to give you what you are entitled to, then you will need something called a QDRO.

QDRO Explained:

QDRO stands for Qualified Domestic Relations Order. A QDRO is a judicial order that gives you access to the portion of your ex-husband’s retirement assets that you are entitled to. Generally, QDROs are drafted by attorneys and are approved by the courts. Once a QDRO is approved by the courts, it can be served to your ex-husband’s employer. Once the employer receives the QDRO, it will be obligated to pay a portion of his retirement assets into a separate retirement account for you. Having the QDRO is extremely important. It should be a top priority for you and your attorney. Without the QDRO, it will be very difficult or even impossible for you to get your share of your ex-husband’s retirement assets.

What About My Retirement Assets?

If you have retirement assets, then yes, your ex will most likely be entitled to a portion of them as well. However, if you had a prenuptial agreement blocking him from these assets, then he will not be entitled to them. In circumstances where both partners have retirement assets, it is common for the former partners to come to a deal in terms of who gets what.

Funds That Were Added Before the Marriage:

Funds that are added to retirement accounts during a marriage are generally considered marital property. When property is considered “marital property” it means that both partners in a marriage or a former marriage have a right to them. However, funds that were added to retirement accounts before a marriage are often not considered marital property. This means that if your ex contributed to his retirement accounts before your marriage began, then you will most likely not be entitled to a portion of these funds as they are not considered marital property.

Retirement Assets and Taxes:

If you decide to start receiving retirement asset payments before you reach 59.5 years of age, then you could receive a 10% tax penalty. Also, the funds you receive will be subject to standard income taxes if you take payment before you reach this age. So, if you decide to take a lump-sum payment from your ex’s retirement accounts before you reach 59.5 years of age, you could lose a significant amount of money to taxes. For this reason it is usually best to wait at least until you reach retirement age before you start receiving payments from your ex’s retirement assets. Not everyone can wait because some people need the money for bills and life expenses. But if you can wait, you should. However, it is also important to know that some employers pay immediate lump-sums and will not give you a choice when you receive the retirement asset payment. So sometimes, the extra taxes are unavoidable. 

State Rules:

The laws for dividing retirement accounts vary significantly from state to state. This means that you are going to have to check the laws in your state in order to know what retirement assets you are entitled to, when you can receive your payments, what documents you have to file, etc. Your attorney can help you with this, however. In some states, retirement assets earned before a marriage is considered marital property and in some states it isn’t. This is just one example of the differences in rules between states.

Quick Summary:

When you are going through a divorce, it is extremely important to make sure that you receive your fair share of your ex-spouse’s retirement assets. In most cases, you will be legally entitled to a percentage if your ex has any retirement assets. This is especially true if he contributed to the retirement assets during the course of your marriage. Oftentimes, former spouses will agree to give you a portion of their retirement accounts and will not contest it. However, many do contest it and attempt to avoid giving you a single dollar from their retirement accounts.

Because some spouses refuse to allow you to receive your fair share of their retirement accounts, you may need to file a QDRO to get access to the funds. If this is the case, you will need help from your divorce attorney to create and file this document. Once the court approves it however, you should be able to access the funds. You should try to delay receiving the funds until after you reach retirement to prevent extra penalties and taxes.

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