For many people, one of the biggest fears in a divorce involves losing financial stability. Divorce involves dividing your marital property and this can include your retirement accounts.
Marital property is generally any property that was acquired during your marriage, while separate property is property obtained prior to marriage, gifts or inheritances, with some exceptions. Even if you had your retirement account prior to your marriage, any increase in the value of the account is usually considered marital property and subject to division.
Therefore, there is a strong chance that you will part with a portion of your retirement account as part of your divorce settlement.
Do your research
Make sure you know the details of each of your accounts. There are different rules and procedures for division depending on the type of account. Missing a step in the process or not following a rule could lead to you losing out on funds, as the rules governing retirement funds are not subject to the terms of your divorce order.
There are specific types of documents that must be used when dividing retirement accounts, as well. Many common retirement accounts, such as 401k’s, are divided with a qualified domestic relations order (QDRO). Other types of accounts, particularly pensions, use different documents and may have different rules.
Your divorce agreement
It is important to make sure your divorce agreement terms clearly state who receives what amount of which retirement account. A copy of your divorce agreement and order must typically be sent with the document for the retirement plan administrator to confirm the transfer.
Dividing retirement accounts is usually one of the most complicated aspects of marital property division because of all the rules and special documents involved. Divorce is already emotionally stressful, so having a professional help you through the property division piece can make the process easier.