Senior divorce (you may have heard it called gray divorce or silver divorce) has been on the rise since 1990. Suppose you have a 401(k) you’ve been paying into for many years. You’ve had a happy marriage as well, however, that marriage has been falling apart at the seams. Finally, you are told that your spouse wants a divorce ”“ what happens to that retirement account? Is it yours, or will it be divided between you and your spouse during the divorce proceedings?
The division of retirement funds in divorce needs to be understood by both parties prior to the divorce, because the sudden financial shakeup that results can drastically alter a person’s retirement plans.
Retirement Funds Are Marital Assets
According to a recent survey from the American Academy of Matrimonial Lawyers (AAML), the three most commonly fought over assets for divorcing couples over the age of 50 are alimony (called spousal maintenance in Colorado), business interests and retirement accounts. When it comes to your retirement account, you have some options:
- Because marital assets must be divided equitably, you can choose to keep the entirety of your 401(k) while giving up other marital assets of comparable value. When considering this option, you must look at the long-term tax ramifications of such an arrangement as well as the current and long-term value of the assets you are exchanging to keep your 401(k). What may be equitable division now may not look so equitable in the future.
- You can split the 401(k) with your spouse. To do this, you must have a Qualified Domestic Relations Order, or QDRO. Your attorney can help explain how a QDRO can help, or you can read our related blog here.
- If you are over the age of 59 ½ or have left your company, you can roll over a portion of your 401(k) into an IRA to be awarded to your ex-spouse. This option may be desirable because it allows you to remove the funds from your 401(k) without any tax penalties, as well as giving your spouse more control over the funds awarded to him or her.
Our Denver divorce attorneys can help you determine the best course of action moving forward for clients divorcing after 50.