What Will Happen to Your Investments and Retirement Plan When You Divorce?

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What Will Happen to Your Investments and Retirement Plan When You DivorceWhat Will Happen to Your Investments and Retirement Plan When You Divorce?

It is important to understand what will happen to your investments and retirement plan when you divorce. If you have decided to divorce, your marital assets will be divided. This could affect your retirement planning or investment strategy. Depending on the type of investment or retirement plan, it might be treated differently during your divorce.

Are Investments or Retirement Plans Marital Property?

Some investments and  types of retirement plan payouts may be marital property for divorce purposes. When you divorce, you and your spouse will each receive part of your marital property. Marital property consists of assets that you and your spouse acquired during marriage. It also includes assets that you or your spouse improved or increased during marriage, such as by making contributions from your salaries. Investments and retirement plans will likely be marital property if you opened the accounts during marriage.

Marital property is different than separate property. Separate property is anything you owned before marriage. This could include any assets you already owned or inheritances you received before marriage. Inheritances given only to you during marriage could also  be considered separate property. However, investments and retirement plans that you started before marriage may or may not be considered separate property.

If you contributed money from your or your spouse’s paychecks to an existing investment or a retirement plan during your marriage, then at least part of these assets may be marital property. Additionally, if they appreciated in value during your marriage, part of the increase in value may be marital property. However, if you held an investment in a separate account and did not contribute to it or increase its value during marriage, it could remain separate property.

Talk to your attorney about how to calculate which parts of your investments could be divided during divorce. You also may need a financial advisor to answer this question. Your lawyer can advise on how to consult the appropriate professionals.

How Divorce Could Affect Investments and Retirement Plans

Cashing out investments or taking a retirement plan distribution early could cost you money. There may be tax implications for the payout, or you might forfeit later increases in value (such as employer contributions). As you negotiate the terms of your divorce, you may need to  navigate these problems.

Using a QDRO is one way to handle this situation. A Qualified Domestic Relations Order (QDRO) allows money to be transferred from one spouse’s retirement account to the other spouse without losing money on taxes and penalties. QDROs can be used for pension plans, IRAs, and other accounts that could result in tax liability.

The timing of when you withdraw from a retirement plan or investment could factor into the divorce as well. Often, people put money into 401(k)s, pensions, and IRAs intending for it to stay there until retirement. If you wait to do so until retirement, you might have to interact with your ex-spouse for much longer than you want. If you and your spouse agree to split the funds now during the divorce, a 401(k) or IRA can be divided and distributed to your separate accounts. A pension plan may be harder to value because it usually takes into account years worked at the company and salary. Talk to your lawyer about options for valuing and dividing up your retirement accounts during your divorce.

Worried About Dividing Up Investments? Consider a Prenup or Postnup

The best way to get peace of mind about your retirement plan and investments should you divorce is to sign a prenup or postnup. Prenuptial and postnuptial agreements allow spouses to designate certain assets to remain separate property. Spouses can state in the agreement how they want to divide up their property should they divorce. If you are interested in signing a prenup or postnup, contact a family law firm such as New Direction Family Law.

For Legal Advice on Divorce, Call New Direction Family Law

At New Direction Family Law, we help people who need a divorce and have questions about property division. If you need to understand your legal rights during the divorce process, our team is available today to answer your questions. With decades of combined legal experience, our North Carolina attorneys are knowledgeable, effective, and compassionate professionals. Contact New Direction Family Law at (919) 646-6561 to schedule a consultation, or visit us at our website.

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