Protecting Your Retirement Accounts In A Divorce

Man looking out the window while enjoying retirement

Protecting your retirement savings during a divorce may not be top-of-mind, but your financial well-being is a priority. Retirement accounts like 401(k)s, 403(b)s, IRAs, and pension plans are subject to equitable distribution in New York. Working with an experienced divorce attorney can help to protect your retirement accounts and give you peace of mind.

The attorneys at Aiello & DiFalco LLP are here to walk you through the divorce process. We understand the ins and outs of dividing marital property and work to protect your financial interest. Contact our office today to get started. 

How Retirement Accounts are Divided During a Divorce

Retirement assets are divided based on the type of account and when the earnings were gained. The court must issue a Qualified Domestic Relations Order (QDRO) before qualified distribution plans can be divided, including:

  • 401(k) plans for employees or private and public companies
  • 403 (b) plans for employees of schools, colleges, and nonprofit organizations
  • Thrift Savings Plan (TSP) for federal government employees and servicemembers

Your divorce attorney can draft the QDRO. Once the judge signs it, the plan administrator must accept and then enforce the QDRO. QDROs for 401(k) and 403(b) plans allow you to roll over your portion into a qualified retirement plan. QDRO rules for TSP plans differ slightly – the divorce decree must set out the amount of the account balance to which each spouse is entitled.

How to Protect Your 401(k) in a Divorce

Assets in a 401(k) will be split according to the rules of equitable distribution. Money contributed toward the plan before the marriage is considered separate property. Contributions after the date of marriage and generated earnings are considered marital assets subject to division. 

If you and your spouse have 401(k) accounts of equal or equivalent value, you can agree to retain your individual accounts without the need for a QDRO. If your 401(k) has a significantly higher value, you can agree to liquidate the account or split the retirement assets into two new accounts, one for each party. 

How to Protect Your IRA in a Divorce

You don’t need a QDRO to divide an individual retirement account (IRA) or Roth IRA. Under IRS rules, these retirements can be split between spouses tax-free within one year of the divorce date. Despite the split, you should continue investing in your IRA or Roth IRA if you are not retiring in the near future. Consider other investment options if you are closer to retirement. 

How to Protect Your Pension Assets in a Divorce

Pension plans differ from qualified retirement plans. Assets that are in the plan during the marriage are considered marital property subject to equitable distribution, but you retain the portion you contributed and earned before the marriage.

Notably, pension plan distributions may be either a lump-sum payment or a monthly annuity payment. Some plans provide for a single-life payout, a pension option whereby payments will stop when the recipient dies. In a joint-life payout, your ex would receive payments after your death. Finally, some pension plans also provide survivor benefits. An experienced divorce attorney can advise you about the right moves for your pension plan. 

Negotiating Retirement Assets in a Divorce

Splitting retirement assets can be costly and time-consuming for both spouses. If you and your spouse are relatively the same age and have similar retirement account balances, each party can easily walk away from the marriage with their retirement account intact. But you may need to negotiate if there’s a wide gap or your spouse does not have a retirement account. In this situation, you can consider offering assets of equal or greater value than their share of your retirement savings. Working with a financially savvy attorney can help you decide which assets you can put on the bargaining table. 

Close Out Your Joint Accounts

Early in the divorce process, close any joint accounts you and your spouse share to prevent further spending or cash-grabbing, including savings and checking accounts, credit cards, or any other debt accounts. Sadly, not all divorces are amicable, and protecting your finances means ensuring your spouse does not have access to them.

Talk to A Experienced Divorce Attorney About Protecting Your Retirement Savings

Dividing retirement accounts in a divorce is challenging and also inevitable. Given the complex tax laws and regulations governing these plans, having trustworthy advice is essential. That’s where Aiello & DiFalco come in. When you work with us, we will carefully assess your retirement accounts and other assets and work to protect your financial future. Contact us today to learn how we can help.