It typically takes decades for people to set aside enough money to ensure their comfort during retirement. People live on a fixed income during retirement and use a combination of personal savings and Social Security retirement benefits to afford their basic daily living expenses.
Retired married couples can often enjoy a slightly higher overall standard of living because they can use the savings of two parties to cover the cost of one household. Unfortunately, if married couples divorce, their retirement savings could potentially be at risk.
What generally happens to retirement accounts during Pennsylvania divorce proceedings?
Both spouses may have an interest in the accounts
Perhaps the most common misconception ion about retirement accounts during divorce is the belief that if an account is in the name of one spouse, then they are the sole owner of that account for the purposes of property division. Nothing could be further than the truth. Even if someone began saving for retirement before they married, they very likely used marital income to fund their retirement account. Therefore, at least the portion of the account that someone contributed during the marriage is subject to division in the divorce.
Both spouses need to report even the assets that they hold solely in their own names, including retirement savings, as they begin the property division process. Of course, dividing the account is not automatically necessary. While the retirement savings may be one of the largest assets that the couple needs to address and the divorce, they don’t necessarily need to split the savings.
They can reach an agreement involving other marital assets that allows them to justify the retention of the entire retirement account on their own. If the division of the retirement account is necessary, the spouses can split it without generating penalties and taxes. A qualified domestic relations order (QDRO) can facilitate the penalty-free division of retirement savings during a divorce.
A lawyer needs to draft the QDRO document, and both spouses usually need to sign it before they can present it to the professional managing their retirement account. Even in cases where the division of the account is necessary, it is possible to preserve the full balance of the savings for the two spouses rather than losing a significant portion of the account to taxes and penalties.
Those with concerns about retirement accounts may need to plan more carefully as they begin the process of negotiating property division settlement. Identifying assets with the most financial and personal importance can help people develop divorce strategies that prioritize their long-term needs.