I Need Advice: Does My Wife Take My Retirement in a Divorce?
Getting a divorce can be emotional and scary, especially if you've saved a decent amount of retirement assets. Many men wonder, "Does my wife take my retirement in a divorce?"
While there's no cut-and-dry answer, there is good news. Your wife cannot take your entire retirement savings. There are many factors to consider, including the state laws and how much of the retirement account you already earned before you married.
The good news is that the division of assets is usually fair, and you don't have to worry about your former spouse taking you to the cleaners.
How Divorce Affects Retirement Assets
There are many ways that divorce may affect your retirement assets, and each situation is different. Typically, any assets earned while you were married become part of the marital property and often get split 50/50, but that's up for the courts to decide.
The most important thing to know is that you must disclose all personal and marital assets in divorce. Your divorce attorney can help you understand what documentation you need and what you must disclose to avoid penalties or other legal battles.
What Is a Qualified Domestic Relations Order (QDRO)?
A Qualified Domestic Relations Order, or QDRO, is a legal decree determined by the courts that dictates how retirement accounts are to be distributed in a divorce settlement.
The partner receiving the benefit must report the earnings just like they would if they earned the retirement assets.
Ex-spouses also have the option to roll the benefit over into another 401(k), just like plan participants could do if they left their jobs and had a new 401(k). Keep in mind, though, that the QDRO does not apply to IRAs, only employer-sponsored accounts, such as a 401(k).
Factors That Determine Retirement Division
It can be concerning to think about dividing your retirement benefits and where your retirement funds will go. While many factors affect who gets pension benefits, 401(k), or IRA funds, here are the basics of what to expect.
State laws: Community Property vs. Equitable Distribution States
The state you live in will greatly determine how your retirement plans are handled in a divorce settlement. Nine states are community property states.
In these states, any assets acquired during the marriage become marital property and are typically split 50/50, including retirement accounts. The only exception would be assets you owned before marriage or any assets protected by a prenuptial agreement.
The nine community property states include:
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
All other states are common law states and use equitable distribution. Not every asset brought into the marriage is automatically split 50/50 in these states.
The courts look at who owns the assets and the circumstances around them. While assets typically get divided equally or at least fairly, the judge will consider the state's property division laws and any prenuptial agreements in place.
Length of Marriage
How long you were married plays a role in distributing your retirement plan.
For example, if you contributed to your retirement accounts for ten years before you married and then were married for 20 years, the courts will likely divide the retirement benefits earned on a prorated basis, not including the earnings from the first ten years in the marital property.
Contributions and Income of Each Spouse
Like the length of your marriage, the courts will consider each spouse's contributions and income when dividing the retirement funds. While most income and contributions earned or made during the marriage become marital assets, there may be some exceptions.
Any Pre-Existing Agreements
If you protected your assets before getting married by having a prenuptial agreement drawn up, it will dictate how the funds get split in the divorce settlement.
This is often a good idea if you have substantial assets saved before marriage. It's not a sign that you assume you'll get divorced, but instead is a way to protect yourself.
How 401(k)s Typically Split During a Divorce
Judges typically split 401(k) accounts evenly if all contributions occurred during the marriage.
If you started a 401(k) or any Individual Retirement Accounts before you married, they may divide only the property considered marital property and leave the amount you earned before marriage to you.
The QDRO will determine how you must handle your 401(k) to transfer funds to your ex-spouse.
Does My Wife Get Half of My Retirement Accounts, IRA, or Retirement Savings?
While it's clear that your wife isn't entitled to 100% of your retirement benefits, no matter your financial situation, there is a good chance she will get half of your retirement accounts, except for anything that's considered separate property.
This doesn't mean the split will be 50/50, to be exact. It depends on many factors and how the courts determine the property settlement agreement in the divorce.
The key is to be upfront about your 401(k), IRA, and any other assets you have. The courts will determine how to split the retirement funds fairly, but disclosure is key.
What Typically Happens With 401(k)s and Other Retirement Accounts During a Divorce?
If you divorce before your retirement years, the court will likely create a QDRO that tells the plan administrator how to distribute funds when it comes time.
It's important for anyone receiving funds to understand the tax implications, including your ex-spouse. You are not responsible for the taxes; she must pay her portion based on what she receives.
How To Protect Your Retirement in a Divorce
Giving up your retirement benefits in a divorce can feel scary. It's crucial that you have a divorce attorney to help you, as well as qualified financial professionals to help ensure you make the right choices.
Here are a few ways to protect your retirement in divorce:
Prenup agreement: You can designate what happens to any assets you bring to the marriage by having a lawyer create a prenuptial agreement, and both partners sign it.
Negotiate: If you don't want to give up half of your retirement benefits, consider settling with other property, such as a house or other valuable assets.
Work with a financial professional: Get professional advice on handling your retirement accounts, including minimizing your tax burden and the best way to settle without giving up too much of your retirement savings.
FAQs
Who Loses More Financially in a Divorce?
Some studies show that women lose more financially in a divorce than men, but every situation is different. It comes down to your state laws, how you held the assets, and whether they were a part of the marriage or kept as separate property.
What Are the Financial Disadvantages of Divorce?
Divorce is expensive. Not only must you pay for divorce attorneys, but there are court costs, the burden of splitting assets, tax issues, and new living expenses you must cover as you start your new life. Without adequate savings and proper legal protection, it can be challenging.
Can My Ex-Wife Claim My Retirement Years After Divorce?
In some cases, an ex-wife can claim retirement benefits years after divorce. This depends on how the divorce decree is written and whether a QDRO is included.
In most cases, however, an ex-wife can claim Social Security benefits after reaching retirement age.
Does My Ex-Wife Still Get Half of My Retirement if She Remarries?
If you're receiving Social Security benefits from your ex-spouse and you remarry, the benefits will likely stop. Any other retirement funds you are entitled to depend on the situation and how they are to be disbursed according to the divorce decree.
Is It Better to Divorce Before or After Retirement?
Divorcing before retirement allows you more time to make up for the assets you had to give up to your ex-wife. If you divorce in retirement, you are stuck with whatever retirement savings are left after the court distributes the assets.
Next Steps and Seeking Professional Advice
Your wife cannot take your entire retirement in divorce, but she will likely get a decent amount of it, depending on how long you were married and how much of the account is a part of the marital assets. The key is to have professional support before, during, and after the divorce.
Contact me today for a consultation to see how I can help you and your spouse in your marriage, with your finances, and if it comes down to splitting your assets in divorce.
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Adam Kol is The Couples Financial Coach. He helps couples go from financial overwhelm or fighting to clarity, teamwork, and peace of mind.
Adam is a Certified Financial Therapist-I™, Certified Mediator, and Tax Attorney with a Duke Law degree and a Master's in Tax Law from NYU. He is a husband, dad, and musician, as well.
Adam's wisdom has been shared with The Wall Street Journal, the Baltimore Ravens, CNBC, NewsNation, and more.
