All couples face challenges when they divorce, but if you face a divorce later in life, you may encounter unexpected issues. For example, if you are like most individuals, you saved and contributed to your retirement funds for many years.
However, if you are nearing retirement age and your marriage lasted more than a decade, your retirement accounts could face equitable distribution during divorce proceedings.
Equitable distribution
This concept does not mean that the court splits your funds equally (e.g., 50/50). Instead, the focus will be on the funds you contributed during your marriage because all earnings that occurred at this time are marital assets according to the courts. Therefore, judges should treat your retirement accounts the same way they treat any other asset.
Complications to equitable distribution
Any funds you earned and contributed to your retirement accounts before you got married are yours and should not experience division. In addition, you should retain any passive earnings or dividends from the money you invested during this time. Even the gains you earned on this money during your marriage are yours. This money is separate property.
Only the money you contributed during your marriage and the earnings on these contributions are subject to division. However, you need to determine a clear point of separation.
Division warning
In many cases, spouses attempt to trade assets so they can retain their retirement balance. However, your retirement account balance is not equal to your savings or money market account balances due to the penalties and taxes retirement accounts face.
If your marriage lasted 10 years or more, your spouse may also receive part of your Social Security benefits, especially if you earned higher wages during your marriage. Prepare for negotiations if you want to keep more of these assets.