Protecting Your Retirement Savings in Divorce: Expert Tips and Tax Implications

Divorce attorney reviewing case with client

Your retirement account could be one of the largest assets in your divorce. You worked hard to build that nest egg, and you want to protect it from the grasp of your spouse in a divorce. This blog will discuss protecting your retirement savings in divorce: expert tips and tax implications.

Certain employer-sponsored retirement savings and pension plans have to comply with multiple federal laws,  so you do not want to try to handle this issue on your own as a DIY project. An Alaska divorce lawyer can provide the guidance that you need during your divorce.  

Prenuptial Agreements 

Some people sign prenuptial agreements (also called antenuptial agreements) before they marry, particularly if they have gone through a divorce in the past or they have children from a previous relationship. A prenuptial agreement can specifically state that each spouse keeps their own retirement accounts like 401(k), 403(b), or IRA accounts as well as any contributions they make to these accounts during the marriage. 

If you want to enter into a prenuptial agreement, you should have a lawyer draft the agreement to make sure that it will withstand future challenges.

Marital Property

Unless you have a prenuptial agreement, the court is required to include the marital portion of all retirement accounts in the final property distribution. Alaska’s equitable property distribution principles do not mean that the judge will divide 100% of your retirement benefits equally.  It is most common for the judge to divide the marital portion equally.  In the case of a defined benefit pension plan such as PERS,  TRS, CSRS, FERS or the military pension plans, the marital portion is a fraction the numerator of which is years of service during marriage divided by the total years of service. The division of a defined contribution plan such as a 401(k), TSP or deferred compensation plan is a little more complicated because the marital portion is defined in terms of the employer-employee contributions during marriage adjusted for losses and gains from the date of marriage to the date of separation.

Exchange for Other Assets

Sometimes, there are two or more sizable assets in a divorce. Your spouse might prefer to receive the entirety of another asset, like the marital residence, instead of a portion of your retirement account but this can be complicated because you would be trading a post-tax asset (equity in the home) for a pre-tax asset (401(k).  

Waiving Rights to Retirement Accounts

When both spouses have retirement amounts of similar value, they may each be awarded 100% of their own accounts instead of dividing each account 50/50.  Some plans require the non-employee spouse to sign a waiver of the right to a share of the employee spouse’s requirement account. An Alaska divorce lawyer can help you avoid these and other expensive problems in your divorce. Reach out to our office today for help with your case.

Posted in: Divorce