My Future After Divorce: Do I Get Any Of The Retirement Fund?

Sun, Mar 23, 2014

Financial Advice, Investment

Retirement SavingsFiguring out how to divide retirement assets during a divorce can be just as intense as determining child custody and child support. Young couples going through a divorce should be just as concerned about their retirement benefits as an older couple closer to retirement.

Social Security, pensions, Individual Retirement Accounts (IRA) and 401-Ks are all up for negotiation since retirement assets obtained during a marriage are considered marital property. If a husband or wife had retirement accounts prior to getting married, some states consider these accounts as separate property and not up for negotiation during a divorce.

Several types of retirement funds are subject to state and federal laws, so this is one reason why dividing retirement assets must receive a thorough review during the negotiation process.

How are Pensions Distributed?

If a pension or 401K are involved, federal law requires that the court issue a Qualified Domestic Relations Order (QDRO), which determines how pensions are divided. Both spouses may have their own pensions and choose to keep them. But it’s more common for spouses with the smallest pension or no pension at all to want a percentage of the other spouses’ pension, which is larger. The percentage for non-working spouses must be approved by the working spouses’ pension plan.

The QDRO also determines the amount of taxes that will be paid when each spouse receives the pension on a regular basis. A non-working spouse can set up an IRA account until he or she is ready to withdraw the money.

What are IRAs?

IRA’s are not established by employers, but by individuals. Therefore, IRA deposits are made by the individual without any contribution from an employer. Since an employer is not involved, splitting up an IRA should be a simple procedure. However, it’s just as technical as dividing other retirement assets because there are different types of IRAs.

It’s recommended that the spouse who owns the IRA, transfer funds to his or her former spouse after the divorce. In this way, neither spouse will have to pay taxes. Couples who do not include this transfer as part of their divorce settlement will have to deal with taxes, which is required under federal law.

Social Security

The disbursement of retirement benefits is the first asset that couples wrangle over when it comes to divorce. Under Social Security rules, while married, a husband or wife has access to each other’s benefits. For instance, if a wife’s Social Security benefits are more than her husband’s, her husband can receive up to 50 percent of her Social Security payments. Except for a few stipulations, the same rules apply when a couple gets divorced. Couples who have been married for 10 years or more before divorcing, can receive up to 50 percent of their former spouses’ Social Security payments, if their former spouses payments are larger than their own.

A myriad of issues need to be resolved when a couple decides to divorce and retirement accounts should be considered a top priority. To secure future benefits from a former spouse, it’s important that couples contact their banks and employers to ask about their personal retirement accounts. Couples should also hire divorce attorneys with considerable knowledge in the technicalities of dividing retirement funds in a divorce.

Teresa Stewart is a professional blogger who frequently researches divorce issues. She has found that Hofland & Tomsheck,, is experienced in family law and will be able to classify community and separate property in the best interest of the divorcing couple.


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