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Are retirement accounts marital property?

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Monday, November 21, 2022

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.


IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. 

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. 

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. 

Member FINRA & SIPC.

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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Lawrenceville, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 800-367-3000 Visit our website: www.davidlerner.com

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