Retirement savings are crucial for your stability later in life. The larger your nest egg when you retire, the more comfortable you will be in your golden years. While you may feel confident about buying a new home after your divorce and otherwise rebuilding your personal property, you may feel more nervous about the idea of losing a substantial portion of your retirement savings.
Unfortunately, the division of retirement accounts is a very common occurrence in modern divorces. Some couples protect themselves from losing retirement savings by negotiating a marital agreement that addresses them. Unless you have a contract with your spouse designating your retirement savings as separate property, you will likely have to split what you saved during the marriage when you divorce.
How can you potentially preserve as much of your retirement savings as possible?
Use the right paperwork to divide the account
If there is anything worse than losing a significant portion of your account balance to your ex, it is losing even more of it because of taxes and penalties. However, if your division of the account triggers early withdrawal penalties because of your age and the type of account used, that could be exactly what happens.
You can avoid the obligation to pay taxes and financial penalties by having one of the lawyers involved in the divorce draft a qualified domestic relations order (QDRO). A QDRO reflects the terms of a property division order and will allow for one spouse to receive a specific percentage of the account’s balance. When properly filed with the administrator of the retirement plan, a QDRO will allow for the division of the existing account into two separate accounts without any penalties.
Negotiate your own property division settlement
If retaining your retirement account is the most important factor in your upcoming divorce, that may be motivation for you to negotiate collaboratively with your ex or possibly even attend divorce mediation. If the two of you agree to reach your own settlement, you can negotiate as necessary to secure the most important terms for your property division choices.
Planning ahead for your upcoming divorce will help you employ the right tactics to achieve the goals that matter the most to you.