Protect Your Retirement Assets During Divorce

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Divorce can be incredibly challenging, both financially and emotionally.

While reports that over 90% of divorces are settled pre-trial, the process can still be draining given complicated relational dynamics and differing needs. The emotional nature of divorce can make it difficult to think clearly about self-care and the needs of family, much less make rational financial decisions. 

Nevertheless, as you prepare for divorce, protecting your future is imperative. After all, retirement plans are often essential assets to consider in the divorce process.

So, how can you be sure to safeguard your retirement assets during a divorce? 

Filing for divorce?

Understand how your finances could be impacted.

First, Take Stock of What You Have Together

As you approach this next phase of life, you must know everything about the financial situation of you and your former spouse. 

Start by understanding your debts — all of them: 

  • Is there any credit card debt? 
  • Do you have a mortgage together?
  • Are there any cars in both of your names? 
  • Did you co-sign a loan together? 
  • Did you bring any debt into the marriage? (i.e., student loans, business debt, etc.)

If you own a home with your soon-to-be-ex, and one person wishes to stay in the property, they will likely have to pay off the difference to their partner. For example, if your house is worth $500,000 and you’ve jointly paid off $100,000 of your mortgage, you may have to pay your partner an additional $200,000. These exact numbers will be specified within the divorce settlement.

While the comfort of home is important, it’s vital to consider if remaining there would set you back financially, especially with regards to retirement planning.

Next, move on to assets. 

Be thorough when taking stock of all your assets. Doing so can help divide them as efficiently as possible and avoid a long, drawn-out mediation.

Your assets may include everything from 401(k)s, IRAs, investment accounts, company stock, savings/checking accounts, insurance policies, houses, and valuable art/collectibles. 

But you may have opened some of these accounts while single, so how will you know what your state considers “marital” or “community” property?

What are Marital Assets?

Marital property generally refers to all assets both spouses acquire while married. Anything acquired separately before marriage (or after separation) is known as separate or “nonmarital” property. So, if your IRA gained funds during your marriage, you may have to distribute some of the profits to your former spouse.

Remember that when laying out your assets, it’s important to distinguish between marital and nonmarital property. Doing so protects yourself from outstanding debts your spouse brought into the marriage and/or safeguards substantial assets you brought into the marriage, such as property or inheritance

No matter your situation, working with your financial advisor to create an inventory of how your finances are intertwined can help you protect your retirement funds.

Start Establishing Things on Your Own

Once you’ve identified all joint and individual assets, begin thinking about your next financial steps. 

It can be frightening to start over, especially if you’ve been financially dependent on your spouse. And yet, the sooner you evaluate the changes you need to make, the more time you have to create a plan and feel confident about the future.

So, where should you start?

Focus on Building Good Credit

A great jumping-off point is evaluating your personal credit. 

Focus on your credit score leading up to (and during) retirement. Remember, any joint accounts can still impact your credit score. 

It’s best to open individual accounts for all future expenses and investments. When bank accounts and investments are in your name, your income can go directly to paying your bills and saving for retirement.

It’s also a good idea to stop automatic payments/transfers to joint accounts and try not to touch those joint accounts during the divorce proceedings. 

Determine if You’ll Need to Change Your Work Situation

Are you working full-time or part-time? Will that need to change?

It can be tough to transition from a lifestyle you’ve grown accustomed to but considering inflation, high real estate costs, and a general increase to the cost of living, there’s a good chance you will need to increase your income. 

This is especially true because the divorce process can often “set you back” financially. This means you may need to budget extra monthly funds to catch up on retirement savings, whether through an employer-based or personal investment account. 

Consulting a financial planner can be extremely valuable during this time. They can help you set new retirement goals, update your retirement strategies, and create a plan that keeps you on track.

Find out if you have enough.

Speak with a Financial Advisor today.

Understand the Value of Your Retirement Accounts

Retirement accounts are often a key asset in the divorce negotiation process. 

Your retirement plan will likely be impacted but by how much?

For example, even if your name is on the IRA, you may have to split some of it with your former spouse, especially if you opened it during the marriage. In fact, there are nine states where all shared assets are subject to a 50-50 split: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Because of this, it’s essential to know the current and projected value of any IRA, 401(k), or pension. 

It’s also necessary to review specific rules for distribution due to a divorce because failing to follow these rules can result in fees. How you divide an IRA likely won’t be the same as an employer-sponsored retirement account, pension, employer stock, or Thrift Savings Plan.

While figuring out what portion of your retirement plan must go to your former partner (or vice versa), you’ll need to get a qualified domestic relations order (QDRO). This order will govern the eventual division of 401(k)s, 403(b)s, and pensions. 

For example, your QDRO may require you to pay half of the account’s value that has grown during the marriage. You can transfer or roll over funds from the QDRO into an IRA for the beneficiary spouse without incurring early withdrawal penalties. You can also use them to allocate funds for child support.

However you divide your retirement savings, it’s critical to reassess your savings and adjust your retirement planning accordingly.

Update Your Estate Plan

Estate planning is integral to your retirement, future, and legacy. 

Having an updated estate plan can protect your finances and ensure your money and property are passed down in alignment with your wishes and values. Not to mention, it can also help your loved ones navigate an emotionally challenging time with your passing. 

Here are some key areas to review and update in your estate plan when divorce happens:

  • Beneficiaries. These are the individuals you designate to receive money from your trust, will, or life insurance policy upon your passing. Perhaps you’d like to remove your former spouse and update it to another family member. There may be specific rules you have to follow regarding these changes, so consult an attorney for help. 
  • Medical directive. This determines who can make medical decisions on your behalf, and you can modify it without notice, spousal consent, or court approval.
  • Power of Attorney (POA). POA specifies who can make legal and financial decisions on your behalf. You may replace your former spouse or modify what they can oversee.
  • Will. Your will specifies your final wishes and also names key people in the estate planning process, such as your executor, guardians for minor children, trustees, the division of personal property, and more. It is an important document to update since your goals, wishes, and assets will all likely change during your divorce.
  • Funeral plan. It may not seem uplifting to think about death, but it’s essential to be comprehensive as you complete your end-of-life planning. If your wishes change about your final resting place, or who will speak at your funeral, you can specify them in your will. 

During this estate audit, check if you previously listed your spouse as a beneficiary on a retirement account, life insurance policy, or a trust, or if they currently play a significant role in carrying out your final wishes like an executor. 

It’s important to note: if you want to edit these documents and replace your spouse with a sibling or adult child, you may have to change this before you finalize the divorce. 

Whatever the case, make sure you review all estate-planning documents with a divorce and estate planning attorney so they can ensure all documents reflect your wishes.

Build a Professional Shield

When it comes to divorce, nothing is simple. 

It’s helpful to have trusted professionals guide you through the process. Your team could include a tax expert, divorce attorney, mediator, and estate planning attorney. 

And since divorce can substantially impact your retirement accounts, your team should include a trusted financial advisor – especially one who specializes in divorce. 

With a financial advisor, you’ll have the most accurate projections possible and you’ll be empowered to sit at the negotiating table knowing what you want – and need – to be financially secure.

Check out our free downloadable PDF for a complete financial essentials checklist when considering a divorce. 

Going through a divorce?

7 essentials to consider when getting divorced.

This incredible resource includes information on:

  • Choosing a divorce process (DIY, mediation, court settlement, etc.)
  • Planning for the legal process
  • Allocating finances during the interim
  • Employing helpful tax strategies
  • Taking inventory of your assets
  • Considerations for your home
  • Getting clear on your negotiables

Abacus is here to help support and guide you. Reach out today to schedule a call with one of our advisors to help navigate a difficult passage with peace of mind.


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