Divorce and Retirement Accounts
When you think about the equitable distribution of your marital property upon divorce, you likely think about your home, stocks and bonds, vehicles, bank accounts, and other such assets. It is important to keep in mind, however, that you and your spouse’s retirement accounts are also likely to be factored in. As with everything else regarding this division of marital property, however, it is often exceedingly complicated.
Marital and Separate Property
Generally, that property that you and your spouse acquire during the course of your marriage is considered marital property, which will be divided equitably between you in the event of a divorce. That property that you bring into your marriage with you and that you keep separate throughout will remain your separate property post-divorce. Retirement accounts, however, are often a bit of both, which can complicate the matter considerably.
If you or your spouse entered your marriage with a retirement account in tow, it is your separate property. However, the thing about retirement accounts is that they tend to grow in value, which is obviously the point. The amount that the retirement account increases in value from the time of your marriage to the time of your divorce will likely be considered marital property – to be divided equitably in your divorce. Further, any retirement accounts initiated during your marriage are unambiguously marital property.
The Division of Your Retirement Accounts
The division of retirement accounts upon divorce can be quite complicated, but there are several methods that are commonly employed:
The retirement account can stay with the spouse whose name is on it, while the other spouse receives another property or asset that offsets his or her percentage of ownership in the retirement account.
If the retirement account can be liquidated without considerable financial loss, the divorcing couple can go this route, and each will simply take his or her share of the proceeds.
If liquidation is not feasible, which it often is not, and there is not another asset large enough to offset the retirement account’s value, the spouse whose name is on the account can obtain financing to buy out the other spouse’s percentage of ownership.
There are important tax implications when it comes to retirement accounts and divorce that also must be taken into careful consideration.