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How to protect your retirement assets in a divorce

On Behalf of | Jan 6, 2024 | Family Law

Divorce is a challenging and emotionally charged process, and one aspect that often gets overlooked amidst the emotional turmoil is the protection of retirement assets.

Preserving your financial security is important during this time, and safeguarding your retirement funds requires careful planning.

Document and evaluate your assets

The divorce rate in 2022 was 14.56 per 1,000 married women. If you face a divorce, thoroughly document your and your spouse’s personal and marital assets, including retirement accounts, pensions and any other investments. Obtain the latest statements and valuations for all retirement assets.

Understand the types of retirement accounts

Retirement accounts have different rules for division in a divorce. Familiarize yourself with the specifics of each account, such as 401(k)s, IRAs and pensions. Recognizing the nuances will empower you to make informed decisions during negotiations.

Obtain a qualified domestic relations order

A QDRO is a legal document that establishes the rights of a former spouse to receive a portion of the other spouse’s retirement plan. A QDRO helps to create a smooth and lawful division of retirement assets. Draft a comprehensive QDRO that aligns with your divorce settlement.

Consider the tax implications

Consult with a tax professional to understand the tax implications of dividing specific accounts. Learning about potential tax liabilities will help you make informed decisions that preserve the value of your retirement assets.

Explore alternative asset exchanges

In some cases, couples may opt for asset exchanges rather than a direct division of retirement accounts. You can trade other assets, such as real estate or investments, instead of splitting retirement funds. Carefully assess the long-term implications and consult with financial experts to determine the most advantageous approach for your situation.

After the divorce, regularly review and revise beneficiary designations to align with your current wishes.