How to protect your retirement assets in a divorce

Divorce can be a complex process. As couples handle the challenges of separating their lives, retirement assets often become a major issue.

Retirement assets include pensions, 401(k) plans and IRAs. If you are thinking about filing for divorce, what steps can you take to protect these assets?

A fair division of marital assets

In Pennsylvania, retirement assets accumulated during the marriage are marital property subject to equitable distribution. This means that a court will divide the marital portion of these assets in a fair, but not necessarily equal, manner. Courts consider factors, such as the length of the marriage, income and earning potential, when deciding on the distribution of marital assets.

Having a prenup or postnup

One way to protect retirement assets is by having a prenuptial or postnuptial agreement. This allows you and your spouse to outline the division of assets in the event of a divorce. In a prenup or postnup, you can state that retirement assets are separate property, which are not subject to property division.

Using a QDRO

In addition, you can use a Qualified Domestic Relations Order (QDRO). This instructs a plan administrator to pay a portion of a participant’s retirement benefits to a former spouse. With a QDRO, you can transfer a portion of your retirement assets to your former spouse without tax penalties. However, they will pay taxes on the received benefits.

Preventing commingling

Also, it is crucial not to commingle separate and marital property. Assets accumulated before the marriage are separate property. However, if you put marital funds in a premarital account, or if such account’s value increases due to active management during the marriage, the increase may be subject to division.

Aiming for a secure future

Protecting retirement assets is vital in a divorce. Since retirement asset division can be daunting, seeking legal counsel may provide you with guidance during the divorce process. Having legal counsel may also help you fight for your rights as you aim to achieve a secure financial future.