Retirement Savings: What If You Get Divorced?

Plans for retirement don't usually include a divorce. Thus, most couples that go through this unfortunate split often don't have a clue about what happens to the money that has been accumulated over the years. Divorce is a tragedy in any case, and can wreak havoc on a couple's finances. For this article, we'll focus mainly on what to do with what has been saved for retirement. (There are many things relating to divorce and money that should be addressed, but we'll talk about those another time.) Sometimes the retirement savings can be a substantial amount, and make a serious difference in the lives of both spouses. For this reason, it is essential to have a lawyer who is familiar with this type of law.

By law, each spouse is eligible for 50% of retirement savings, regardless of who contributed the most. These savings are considered a marital asset. Divorcing couples will need to agree on the value of the retirement assets to proceed dividing them up. A good lawyer will help with this.

While the dividing of retirement assets is negotiable, women often give up all of the assets in exchange for the home. Each situation is unique, and this may not always be in the best interest of the woman. Sometimes it is more beneficial to procure part of the retirement savings rather than the whole house. Spouses should consider their immediate and long-term needs and assets, and work with their lawyer from there.

Many divorcing couples worry about paying penalty fees to the IRS for moving their retirement savings around. Luckily, there is a court order designed for this situation. A Qualified Domestic Relations Order is used to transfer money from one spouse's employee retirement account to the other spouse. It can be used to put the money into the spouse's IRA, or--for those with more immediate needs--transferred directly to the spouse to be spent as needed. The IRS 10% early withdrawal penalty does not apply, but the usual taxes still do.

Retirement savings can have a big impact on a divorce. With a good lawyer and the many policies already in place, the money can be divided in a manner that is best for everyone involved.