Are retirement accounts marital property?
Ending a marriage can be a very painful experience. Years spent married to another means you also gather financial responsibilities together. The financial implications of a divorce can be very complex to understand and you may need a professional to give you advice. Certain states will have different rules so you need to be sure that you have all the information you require.
It is important to note that retirement earnings that have been saved during the years that you were married can certainly be considered marital assets that could be divided if you were to get a divorce. The key point to note is that this is only for the years that you were married. If you had retirement savings from before the time you walk down the aisle those should not be affected.
The state that you live in will play a role in the way your retirement accounts are handled. Certain states consider 401(k) or IRAs community property. There are currently nine community property states.
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
In Community property states, any assets gathered during the marriage are considered community property. It doesn’t matter which partner signed up for or bought an asset, it is considered to be owned jointly. This does not only apply to physical assets like a car or a house but also applies to financial assets and that includes retirement funds and any investments. If you live in a state which follows equitable distribution rules the court will decide how to divide any marital assets equitably. While they aim to be fair it is up to the court to decide. This means the assets may not be split 50-50.
“You should always weigh the tax implications of the proposed asset division, “ says Richard Eden Senior vice president of David Lerner Associates, “if you do have to take money out of a traditional IRA to pay into a new one signed up and your spouse’s name you will have to pay income tax and early withdrawal penalties on any money removed from the account.”
If you both have separate 401(k) or IRAs it may be possible to hold onto your own money. However if one has more money in their retirement accounts than the other the Qualified Domestic Relations Order (or transfer to the other spouse) could come into play.
Retirement accounts are marital property. This means that you have to work out how much of your retirement savings will be affected to get a real idea of your financial future.
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