Having a spouse generally makes it easier to enjoy a higher standard of living. Married couples can afford a more comfortable house because they qualify for a larger mortgage. They have more wiggle room in their budgets with two streams of income, which can make it easier to save for retirement. They also get to combine their expenses after they stop working full-time, making retirement overall more affordable.
Divorcing later in life often makes people feel anxious about their retirement plans. People may worry about maintaining a separate household and the possibility of losing some of their retirement savings. What typically happens to retirement accounts when couples divorce?
Both spouses may have an interest in the retirement funds
It is quite common for retirement accounts to relate to people’s work. They may have a pension or a 401(k) that their employer contributes to annually. Only one spouse may make direct contributions to the account. However, that does not mean that the account holder can treat the retirement funds as their separate property.
Instead, they have to report any amounts added to the account during the marriage as part of the marital estate. They then have to integrate that value into other property division decisions. For some people, the simplest solution is to offset the value of the retirement account with other marital assets. For others, actually dividing the account might be necessary.
If someone has an employer-sponsored pension, their spouse may request alimony or spousal support when they start receiving pension distributions after they retire because they cannot technically split the account. If one spouse has a 401(k), the spouses might draft a qualified domestic relations order (QDRO) to divide the funds in one account into two separate accounts.
The uncomfortable reality is that retirement savings are usually vulnerable during a divorce unless there is a marital agreement stating otherwise. That being said, spouses can still plan for optimal financial stability after a divorce.
Having realistic goals for property division and focusing on long-term financial recovery may help people better handle their divorce proceedings. Spouses who understand what assets they have to divide can approach negotiations with reasonable expectations.