You have spent years investing in and planning for life after retirement. You do not want anything to disrupt your blueprints for the golden years. Unfortunately, life is full of unexpected changes, some of which, like divorce, will impact your financial future.
If you and your spouse have recently decided to separate and move in different directions, gaining an understanding of the division of retirement assets during divorce will prove beneficial in negotiating a marital settlement agreement or preparing for divorce litigation.
Dividing retirement accounts in divorce
Retirement and investment accounts can be exceedingly complex. Dividing them improperly can lead to devastating consequences for both spouses, so you want to protect your financial future following divorce. Some crucial aspects to cover during this period include the following:
- Identifying entitlements: Upon your separation, one of the first steps to take is identifying and valuing all marital assets, including retirement accounts and pensions. Depending on the nature of the account – is it an individual retirement account? an employer subsidized 401(K)? a government or military pension? – different rules may govern the division of the asset.
- Marital property versus separate property: When identifying retirement assets, it is critical to determine if any portion of the asset is classified as separate property. If funds were contributed to the account or if months or years of creditable service for a pension were earned before the date of your marriage or after the date of your separation, there is likely a portion of that account or pension that is your separate property, which property is not divisible in divorce. Being able to positively establish the separate identity of these funds or portion of your pension to your spouse will enable you to manage his or her expectations relating to the division of these assets.
- Properly dividing the marital portions of accounts and pensions: Once you have agreed upon the division of the accounts or pensions, or a court has ordered the division of these assets, attempting to divide them without the proper forms or orders can lead to months, or even years, of delay and frustration. It is often necessary to obtain approval from the retirement plan administrators before they will divide the assets, even when both spouses agree to the division. Further, improper transfers of retirement funds can have unintended and devastating tax consequences. Ensuring that you obtain the correct orders, such as a Qualified Domestic Relations Order or Court Order Acceptable for Processing, allows you to avoid these potential dangers and delays.
Assistance in the process
Most people realize that a divorce is going to be a difficult, emotional process, but the technical aspects of dividing your finances also can be challenging. Seeking assistance from an attorney knowledgeable of Virginia laws surrounding divorce and retirement accounts can help you eliminate or manage the technical problems, and this can help ease the emotional stress along the way. You should get guidance from an attorney dedicated to family law once you begin considering divorce or soon after your separation. Knowing the facts will enable you to make informed decisions throughout the process and may prove helpful in achieving your retirement goals following divorce.