People preparing for divorce have to think carefully about their finances. What happens during the divorce process can have a major impact on their financial well-being for many years to come. Between the need to pay for the divorce process and the requirement to divide property with a spouse, divorce has the potential to cause drastic changes to an individual’s economic circumstances.
Assets that represent a significant investment or that could have a bearing on an individual’s financial stability in the future often become points of contention during divorce proceedings. Frequently, spouses may have disagreements about the division of their home equity.
Financial resources are also commonly focal points during property division negotiations. Many people save aggressively for retirement during their marriages. They may then need to make arrangements for their retirement savings when they divorce. Understanding how the courts might address retirement savings may make it easier for people to propose reasonable settlements.
Spouses may split accounts
Confusion about retirement resources is quite common during divorce. Many people have retirement accounts associated with their employment. Others may have begun saving before they got married. People sometimes believe that because they started saving before they got married or because they are the only one who contributed to the account, they can claim their savings as separate property.
When applying equitable distribution standards to marital property, ownership records are not the main consideration. Instead, the most important concern is when people deposited funds into the account. Any deposits made during the marriage, including an employer’s matching contributions, are likely subject to division during a divorce.
In some cases, the best solution is to directly divide an account. Spouses can achieve that without risking penalties and tax consequences. If they use a qualified domestic relations order (QDRO) approved by the courts, divorcing spouses can split the contents of a tax-deferred retirement savings account into two separate accounts without taking additional losses.
Spouses can offset the account’s value
Actually splitting the account is not necessary to factor it into the property division process. Divorcing couples also have the option of determining how much of the account is subject to division and then using that figure to influence other decisions. Home equity, other financial resources and even vehicles can help make property division fair in cases where one spouse retains the entirety of a retirement account.
Couples usually have the option of reaching their own property division settlements if they intend to pursue uncontested divorces. In contested divorces, a judge decides what happens with retirement savings and other valuable assets. Understanding the basics of the property division process can help people prepare for divorce. Retirement accounts are often an important consideration when dividing marital property.