How to Protect Your Retirement Assets During a Divorce

When it comes to love and marriage, “happily ever after” isn’t always in the cards. Although the U.S. divorce rate is the lowest it has been in decades, research from the University of Maryland shows that about 52.7% of marriages still end in divorce. A big part of that number comes from Baby Boomers approaching retirement.

With so many marriages breaking up, a lot of people find themselves having to rethink their approach to financial planning after divorce.

Divorce can create some unique challenges in your retirement plans. If you’re in this boat, here are some steps you can take to help protect your savings.

7 Ways to Protect Your Retirement Funds in a Divorce

A retirement nest egg reflects years or even decades of hard work and careful planning. So, when your marriage comes to an end, you must know how to safeguard your financial future.

1. Understand What’s at Stake

Retirement accounts, such as 401(k)s, IRAs, and pensions, are often considered marital assets in a divorce. As a result, they can be divided between you and your spouse based on the specifics of your case.

In Utah, assets are divided according to the principle of “equitable distribution.”. Instead of splitting everything down the middle, the court will look at various factors, including the length of the marriage, each spouse’s financial situation, future earning potential, and both financial and non-financial contributions to the marriage, like homemaking or raising children.

Even if you’ve been the sole contributor to these retirement accounts, the portion accrued during the marriage could still be shared with your spouse. Knowing this upfront helps you prepare mentally and financially for what’s ahead.

2. Get to Grips with Your Financial Picture

The first step in protecting your retirement savings is understanding the full scope of your financial situation. Gather all your documents- retirement account statements, pay stubs, tax returns, bank statements, investment portfolios, and any records related to property or debts. Don’t leave any stone unturned. You’ll want to have a full view of what you own and what you owe.

Next, organize these records in an easy-to-understand way. Create a list of all your assets and liabilities, including the current value of each. The more prepared you are, the stronger your position will be during settlement negotiations or court proceedings.

3. Apply for a Qualified Domestic Relations Order (QDRO)

If you have a 401(k), pension plan, or another employer-sponsored retirement account, you’ll need to work with your Utah divorce attorney to obtain a Qualified Domestic Relations Order (QDRO).

Under a QDRO, a court order is issued specifically instructing a retirement plan administrator to distribute the retirement assets between you and your ex-spouse. It makes sure your ex-spouse receives their fair share of your 401(k) without having to pay penalty fees or taxes.

However, remember that not all retirement accounts are eligible for QDROs. It’s important to consult with a divorce lawyer in Utah to get expert advice on whether a QDRO is necessary for your situation.

4. Negotiate Wisely

Splitting retirement assets during a divorce can be both expensive and time-consuming for everyone involved. On top of that, you have to consider legal fees, and the fees plan administrators charge for processing QDROs.

If you and your spouse are close in age and have similar balances in your retirement accounts, it might make sense to agree that each of you keeps your own retirement savings to avoid these costs altogether.

However, if there’s a significant difference in your retirement account balances, you’ll need to negotiate. Think about offering other assets of equal or greater value to cover your spouse’s share of the retirement savings.

You could consider transferring funds from other accounts, like a brokerage account, which might be easier to replace if you’re still working. Remember, these accounts don’t have the same tax benefits as a 401(k) or Roth IRA.

Likewise, if you’re living in a mortgage-free home, you may want to hand over the keys to your ex-spouse in exchange for leaving your retirement benefits intact.

5. Close Your Joint Accounts

Early in the divorce process, you’ll need to close any joint accounts you share with your spouse to prevent any unauthorized spending or cash withdrawals. Unfortunately, not all divorces are amicable, and one of the best ways to protect your finances is to make sure your spouse no longer has access to them. If you’re expecting to receive a portion of your ex-spouse’s 401(k) or IRA, they might try to borrow against it.

Act quickly and move forward with the divorce proceedings as soon as possible. Consult with a divorce attorney in Utah before making any financial decisions during the proceedings.

6. Consider Mediation or Collaborative Divorce

Opting for mediation or a collaborative divorce can be a less confrontational and more cost-effective way to handle asset division. Mediation puts you and your spouse in control of critical decisions, with the help of a neutral third party. You can work together to find creative solutions to protect your retirement savings.

Seek out a qualified mediator or a lawyer trained in collaborative divorce practices. Be careful to choose professionals who have experience with financial issues in divorce, particularly those related to retirement assets.

You and your spouse will need to be open to compromise and work together to outline your financial realities and future needs. By engaging in these alternative dispute resolution methods, you can avoid the stress and expense of court battles and work towards a settlement that respects both of your interests.

7. Focus on Rebuilding Your Financial Future

After your divorce is finalized, shift your focus towards post-divorce financial planning and rebuilding your future. Reassess your goals in light of your new circumstances. Account for the changes in your income, expenses, and retirement timeline.

One actionable step is to increase your contributions to retirement accounts, such as a 401(k) or IRA, to make up for any lost time or savings during the marriage. If you’re working, check with your employer about any matching contributions and try to maximize them.

Additionally, explore new investment opportunities that align with your revised financial goals. You can diversify your portfolio or invest in assets that offer a balance of growth and security. Consulting with a financial advisor can help you make informed decisions tailored to your situation.

The Bottom Line

Divorce can feel like a storm, but with the right strategies, you can protect your retirement savings and come out stronger on the other side. Remember, it’s your money, your peace of mind, and your life to rebuild. Stay informed, stay proactive, and know that you’re not alone in this journey.

Going through a divorce in Utah? Don’t leave your financial future to chance. Contact the experienced Utah divorce attorneys at Henriksen & Henriksen Law to help you navigate the complexities of dividing retirement assets. Schedule your consultation today!