Married couples often work cooperatively to set aside capital for their retirement. Tax-deferred retirement savings accounts, investment funds and pensions can all provide financial support for those living on a fixed income. There are also benefits that support older adults in their golden years.
Those preparing for divorce are often anxious about their retirement resources. They want to ensure a fair outcome that allows them to retire as planned. However, both spouses may have similar priorities, leading to conflict and confusion about the most reasonable way to handle retirement resources.
What do divorcing individuals generally need to know about dividing retirement resources?
Some support is automatically available
Not all retirement resources require direct division. Even if only one spouse worked full-time during the marriage, both spouses might potentially be eligible for Medicare and Social Security retirement benefits based on the income accrued by the higher-earning spouse.
Provided that the marriage lasted at least 10 years, both spouses have a right to request Medicare and Social Security retirement benefits based on the income of the working or higher-earning spouse. The claim for benefits made by the lower-earning or dependent spouse does not diminish the benefits received by the wage-earning spouse.
Dividing accounts can be a challenge
Pensions, 401(k)s, investment accounts and other financial resources set aside for retirement often require division in a divorce. Spouses may need to determine how much of the account is marital and how much is separate.
From there, they may have to consider whether actually dividing the account or pension is a reasonable option. In some cases, it may not be possible to actually split the savings. The spouses may then need to account for the value of the retirement resources when allocating other assets.
They could also make arrangements for alimony or spousal maintenance based on the future value of pension distributions. If spouses do directly divide tax-deferred accounts or pensions, they may need to work with an attorney to draft a qualified domestic relations order (QDRO) to do so safely and without incurring penalties or risking tax consequences.
Creating an inventory of potential retirement resources may be the first step toward a fair division of retirement benefits and savings. Spouses concerned about complex property division matters may need to review their resources with an attorney and begin strategizing early for the optimal outcome, and that’s okay.