When you and your spouse begin planning and saving for retirement, you likely looked at what your joint expenses would be as a marital household. You may have had to make sacrifices over the years in order to continue contributing appropriate amounts to your retirement account.
It may have taken a lot of dedication to stay on target for a comfortable retirement. Now that you find yourself considering divorce, it is perfectly normal to wonder if you are going to have to split your retirement account with your spouse. How do the courts typically handle retirement funds in divorce proceedings?
Most retirement accounts are at least partially marital property
When the Kentucky family courts try to figure out how to split up your assets, the first step in that process involves figuring out which assets are marital assets that they can divide and which are separate property that one spouse keeps.
Marital assets typically include anything earned or acquired during the marriage, with the exception of gifts and inheritances. Your separate property will include those gifts and inheritances, as well as assets owned outright prior to the marriage and anything that you designated as separate property in a prenuptial or postnuptial agreement.
Your retirement account could be a combination of marital and separate property. Any deposits and balances accrued prior to your marriage will be separate, while amounts earned and accrued during your marriage are marital and subject to division.
Will you take a loss for splitting the account?
Now that you know that the division of the account is likely, you may find yourself worrying about tax penalties and fees because of the tax-deferred status of the account. Thankfully, if the courts order the division of retirement accounts as part of the property division process, they will provide a Qualified Domestic Relations Order (QDRO).
Properly executed by the plan administrator in charge of retirement benefits, that QDRO protects you and your spouse from any penalties associated with early withdrawal because of a divorce-related division. In other words, while you may lose some of the account to your ex, at least you won’t lose some of it in penalties and fees.