How do I protect retirement assets during divorce?

Your residence, marital asset value, tax responsibilities and retirement account balances are all considered in the division of your assets during a divorce. If you live in a community property state, the courts will divide all your assets equally, while other states require an equitable, not always equal, distribution.

However, there are strategies you can follow to protect your retirement assets during your divorce.

Focus on minimizing your tax burden

One way to protect your assets is to minimize your tax burden. If you or your spouse take money out of a retirement account before you are eligible, you typically have to pay taxes and fees. To prevent these fees, do what you can to avoid touching your retirement accounts. For example, you could offer your spouse other assets that have a comparable value.

However, you may also apply for a qualified domestic relations order from the court, which allows you and your spouse to place the money into two different accounts, protecting you from fees and taxes.

Gather your fund contribution documents

If you invested in a retirement account, an IRA or 401(k), before you got married, you can keep these funds. Therefore, gather the records of your contributions and balance before your wedding day.

Designate a beneficiary

Your employer or the company that manages your accounts does not automatically change your beneficiary after a divorce. Therefore, designate and update your beneficiaries.

Calculate your spouse’s accounts

Your spouse’s retirement account balances offset the division of your account. For example, if you have $400,000 in your account and your spouse has $250,000 in a retirement account, only $150,000 of your account balance is subject to division.

The best strategy for protecting your retirement funds is to openly communicate and work with your spouse to find a mutually beneficial solution.