How hard will divorce hit your retirement accounts?

How hard will divorce hit your retirement accounts?

| Apr 7, 2021 | Complex Property Division

The closer you are to retirement age, the more likely you are to worry about not having enough to live on once you stop working. If you complicate years of planning and savings by divorcing now, you may worry about what that means for your quality of life or whether you will be able to retire at all.

Whether you are a dependent spouse who never started their own retirement account or you have a pension through your employer, you probably feel worried about what your potential future divorce will mean for your retirement savings. How will the Kentucky court typically divide retirement assets in a divorce?

Marital assets will get split

If you agree to an uncontested divorce through negotiations or a prenuptial agreement, you probably already have an idea about what will happen with your retirement account. If you know that a judge will be the one making the final decision, then everything is uncertain.

Generally, a judge can and will divide retirement benefits, including employer-sponsored pensions, during a divorce. Under Kentucky’s equitable distribution standard, any amount accrued during the marriage is subject to division in a way that the courts rule is fair for everyone.

The amount you accrued before you got married will remain your separate property in most cases, but you will likely have to share at least a portion of the amount from during the marriage. Dependent spouses may even have a right to claim alimony when their spouse receives their pension if there isn’t an account to divide.

Following the right process means you won’t have to incur penalties

If you have a tax-sheltered retirement account that you have funded, possibly with employer contributions, you know that if you withdraw from it before you reach a certain age, the government hits you with all kinds of penalties. Thankfully, you don’t have to worry about those in a divorce.

When the courts decide how to split retirement assets, the result is a Qualified Domestic Relations Order that you can file with the company or individual managing the retirement benefits. When they follow that order properly, you won’t have any losses other than the amount that goes to your spouse instead of to you. Understanding how much of your account could be vulnerable to division can help your start planning for you financial future right away.