People who have made the difficult decision to divorce often start thinking about the future before they finish the process. They want to picture a happier life after the end of an unsatisfying or unhealthy marriage.
Frequently, people have a hard time visualizing the future because they don’t know what may happen with their finances. Particularly in scenarios where people are within a decade of retirement, they may worry about losing crucial savings as part of the divorce process. For many professionals, preserving as much of their retirement resources as possible may be their main objective throughout the divorce.
What are some of the strategies that people utilize to maximize their retention of retirement resources when divorcing?
Making concessions in other areas
When a spouse has a main priority for property division matters, they can let that priority guide their decisions and other areas. By compromising, they can obtain the terms that matter most to them. Someone who agrees to let their spouse keep other assets or who takes on more marital debt can potentially negotiate a property division arrangement in which they retain sole possession of their personal retirement savings. Those with larger marital states often have the flexibility to offset the value of their retirement savings with other assets or marital debts.
Protecting part of the balance as separate property
A retirement savings account may have existed before someone initially married. They may have already had tens of thousands of dollars set aside for their golden years when they started their marriage. People frequently need to conduct in-depth financial reviews to validate how much of the retirement savings account is separate property and how much is marital property. What people saved before they got married and any deposits they made after formally separating from a spouse may constitute their separate property.
Following the right steps for account division
Particularly in scenarios where people use tax-deferred accounts for retirement savings, they are at risk of penalties if they make an early withdrawal. They can push themselves into a higher tax bracket and may have to pay a 10% penalty based on how much they remove from the account before retirement age. When spouses properly use a qualified domestic relations order (QDRO) drafted based on the property division decree from their divorce, they can avoid the penalties and tax consequences of splitting the account. They have to draft and record the QDRO after the courts finalize the divorce.
Reviewing personal financial goals and marital circumstances with a skilled legal team can help people push for the best outcome in an upcoming divorce. For many people, preserving retirement accounts may be one of their top priorities throughout divorce negotiations and litigation.
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