How will divorce affect my retirement savings?

Divorce can bring many financial challenges. During this time, it’s natural to want to protect your retirement savings. After all, for many families, retirement accounts are their most valuable assets—second only to the family home. Knowing how divorce affects your retirement savings can help you make better choices for your financial future.

Sharing retirement savings between spouses

Retirement accounts are considered marital property. That’s why, during divorce, the court may split the benefits between you and your spouse. This applies even if you were the only one contributing to the retirement account.

Take note that New York follows equitable distribution laws. This doesn’t require a 50-50 split. The court considers factors like:

• Marriage length
• Each spouse’s earning capacity
• Contributions to the marriage

Remember, the court aims for fair division, which isn’t always equal.

Different ways to split up retirement savings

Different retirement accounts need different approaches for division. Here’s what you need:

• Individual retirement accounts (IRAs): You can transfer amounts directly between accounts using a “transfer incident to divorce.” This allows you to avoid taxes and early withdrawal penalties.
• 401(k)s and company pensions: Pension funds require a Qualified Domestic Relations Order (QDRO). A QDRO lets you avoid early withdrawal fees and tax penalties as well.
• Government or military pensions: You may need special court orders beyond standard QDROs.

Generally, the court decides how to divide retirement accounts during divorce. However, with military pensions, your spouse may only get up to 50% of your pension benefit during the divorce.

You don’t have to do it alone

Dividing retirement accounts is challenging. It’s even harder if you have retirement accounts you started before marriage. Working with a legal professional can make the process smoother and help protect your financial interests. They can make sure you’re doing everything right—especially when preparing QDROs, so you can receive your fair share of retirement benefits.