It may take someone’s entire working lifespan to set aside sufficient resources for retirement. While most adults can potentially also draw Social Security retirement benefits, their personal savings will likely be their main source of financial support during their golden years.
Many couples start saving for retirement together, but a significant portion will divorce before retirement. How much of any given retirement account is at risk in a Florida divorce?
Marital contributions are subject to division
Some people protect their income or their retirement savings with a prenuptial agreement. However, while marital agreements have become more common, they are only present in a portion of modern divorces.
For those without an agreement, typically any amounts deposited during the marriage will be subject to division in the divorce. It does not matter whether someone had a retirement account prior to marriage. While they can protect the deposits made prior to marriage, the balance accrued during the marital relationship is subject to equitable division.
At the very least, the value of the marital portion of the retirement account will be an important consideration when dividing the couple’s property. One spouse could potentially lose half of their retirement account or even more depending on how they negotiate their property division settlement or what a judge decides would be appropriate.
Fees and penalties are avoidable
There are risks associated with taking money out of a retirement account before someone reaches retirement age. Taxes and early withdrawal penalties could siphon thousands of dollars away from a retirement account already diminished by the need to split the funds within it.
Thankfully, those dividing retirement savings in accordance with a divorce decree will be able to avoid such penalties in most cases. Having one of the lawyers involved draft a qualified domestic relations order (QDRO) and then submitting that document to the plan administrator can allow for the straightforward division of the one account into two separate accounts with no penalties or taxes applied unless either spouse makes a withdrawal from their individual account later.
Although some loss of retirement savings is likely for each spouse in the average divorce, it is possible to minimize these losses by setting specific priorities during divorce negotiations and understanding the QDRO process. Identifying which marital assets are worth the most can help couples prepare for complicated upcoming divorce proceedings. Seeking legal guidance can also help each spouse to ensure that their interests are protected as they move forward.