Saving for retirement is often important for an individual’s future financial stability. They may set specific budgetary decisions based on their retirement goals. In some cases, the money that they have set aside for their golden years might be the most valuable resource that they share.
Particularly if they are close to retirement age, they might have more set aside for future expenses than equity accumulated in their home. It is common for people to worry about the distribution of their retirement savings under community property rules. Spouses have many ways to settle matters related to their retirement savings as they attempt to negotiate divorce terms.
What are some of the most common solutions for retirement accounts during a divorce?
Allowing retention of personal accounts
Frequently, each spouse has their own pension or retirement account associated with their employment. They may make pre-tax contributions to their own account with every paycheck. They may even receive quarterly or annual matching contributions from their employer. In scenarios where spouses have both saved for retirement, they might agree to simply retain their personal accounts when they divorce.
Splitting each account
Frequently, one spouse earns more than the other. One spouse may have retained the same job for longer than the other. When the individual retirement accounts held by spouses are of vastly different values, the best solution for a fair outcome might entail dividing both accounts. In such scenarios, the spouses may need to arrange for a lawyer to draft a qualified domestic relations order (QDRO). They can then each retain a portion of the retirement accounts that they have funded throughout the marriage.
Offsetting account balances
Perhaps only one spouse has a retirement account, or perhaps one spouse has saved far more than the other. It may be possible to allow the current account holder to retain their savings in exchange for a reasonable share of other marital property. Spouses can reach agreements in which one spouse receives the retirement savings in exchange for other assets that belong to the marital estate. Spouses can also potentially use responsibility for marital debts to balance out the retention of a retirement savings account.
Each solution offers benefits and drawbacks depending on the circumstances. Spouses have the option of choosing their own solutions or litigating and allowing a judge to decide what is appropriate. Thinking carefully about how to address key resources during the property division process can set people up for financial stability after a divorce.
