In most cases, the assets you accrue from the date you are married forward become “marital” assets. A divorce will require you to separate and divide your marital assets.
If you or your spouse has a retirement asset, such as a 401(k) or a pension, this asset will need to be addressed in your divorce. Unless there is a valid prenuptial agreement that covers retirement assets, one spouse is likely entitled to a share of the other spouse’s retirement assets earned during the marriage.
Retirement accounts come in many shapes and sizes.
Be sure to talk to an experienced family law attorney before making assumptions about how your or your spouse’s retirement will be dealt with in a divorce. There are many different types of retirement accounts. What you may read online about one type of a retirement account, such as a 401(k) for example, will not apply to other common forms of retirement accounts, such as a pension.
In many divorces, the retirement accounts are the couple’s largest asset. They are generally also the most complicated assets. For this reason, it’s especially important to make sure that you
What’s the value of my retirement account today?
Do not assume that the value of your retirement account is the number you see listed on a statement you receive from the financial institution who holds your retirement plan. In some instances, the value listed on the statement may represent something other than the number you need in order to equitably divide your retirement with your spouse.
Working with an experienced family law attorney, in conjunction with a retirement expert and an actuary, is the best means to ensure your retirement is divided in an equitable manner. The consequences of mistakes made in dividing retirement in your divorce may not be realized until years later, when you and/or your ex-spouse retire. Sometimes it is then too late to correct the mistake.
Did you have a retirement account started before you married?
Generally speaking, if you had a balance in your retirement account prior to your marriage, you will not be required to share that balance with your spouse as part of your divorce. In some instances, you may also be entitled to keep any market growth that has been earned due to the investment of your pre-marital balance. Doing so will require that you perform certain calculations to demonstrate how your money has grown. This typically requires the assistance of an experienced family law attorney and a financial expert.
Will I have to pay taxes if I receive part of my spouse’s retirement account?
Whether you will have to pay taxes when you receive part of your spouse’s retirement account depends entirely on the type of retirement account your spouse has, and on how you choose to take your share of your spouse’s retirement account. This is another reason that retirement assets are among the most complicated divorce topics.
For many retirement accounts, it is entirely possible that you will receive your share of your spouse’s retirement account with zero immediate tax consequences. Working with an experienced family law attorney and financial expert can ensure that you know your options, including how to avoid an unexpected tax bill related to your share of your spouse’s retirement.