Divorcing couples have to have many challenging conversations. They have to decide who stays in the family home. They have to divide responsibility for credit card debt. They also need to split up their financial resources, including retirement savings accounts.
Some assets are not subject to division under equitable distribution rules. They are separate property that one spouse can retain. Separate property could include assets owned before marriage and resources received as part of an inheritance or as a gift from another person. Spouses preparing for divorce might hope to protect their retirement savings as separate property.
Is a 401(k) or similar retirement savings account held in the name of one spouse separate property that they do not need to divide when they divorce?
Ownership records aren’t the deciding factor
Spouses often hope to prove that their retirement accounts are separate property. People may point to the fact that they have been the sole contributor to a retirement savings account as an indicator that it is their separate property. Others might highlight the fact that they started funding the account before they got married.
Regardless of those complicating factors, the retirement savings account is likely subject to division. When the courts determine what is marital property and what is separate, the date when people acquire resources is more important than the name included on ownership paperwork.
Accounts in the name of one spouse may be subject to division if they contributed to the account during the marriage. Retirement savings accounts and even pensions are potentially part of the marital state.
How do people address retirement accounts?
There are a few solutions for fairly addressing retirement savings during a divorce. Some people directly divide the account using a qualified domestic relations order (QDRO) approved by the courts.
Others determine how much of the account is marital property and then use that value when dividing other assets. It is even possible to use alimony as a means of fairly sharing retirement savings.
Learning more about property division proceedings in high-asset divorces can help people prepare themselves. Spouses who know what they have to divide can set realistic priorities and work to better ensure that they secure a fair outcome when they divorce.