What Happens to Retirement Accounts During a Divorce?
The division of assets can quickly become one of the most challenging parts of a divorce, particularly if a couple has various assets with substantial value. If you or your ex-partner have retirement accounts, you may wonder how these accounts will be divided during your divorce. Learn more about how the courts handle these accounts and for more personalized assistance with your divorce case, call Kirk Drennan Law at 205-803-3500.
Contentious Part of Many Divorce Settlements
It’s no surprise that retirement accounts are a sticking point in many divorce cases. They are some of the most valuable assets you may have since they continue to appreciate over the years. If the individual in possession of the accounts has invested aggressively or made particularly wise investments, retirement accounts can easily hit the seven or eight figure mark.
Regardless of who contributed to the retirement accounts, it makes sense that both parties want their fair share. If one spouse worked and contributed to the accounts while the other was a homemaker, for example, remember that the lower-earning spouse likely gave up career opportunities to care for the home, assuming that they would be able to live on those earnings in their golden years.
No matter which side you fall on, you need to have an effective strategy to get what you deserve. That’s why it’s crucial to work with an attorney who has extensive knowledge of issues with retirement accounts and other complexities that often arise in high net worth divorce cases.
Retirement Accounts Follow the Same Rules as Other Assets
In general, retirement accounts are viewed by the courts as identical to any other assets. That is, Alabama courts divide them in an equitable manner. This doesn’t mean that they are split 50/50. It means that they are split in a way that is considered fair, based on both parties’ other assets, earning potential, and other circumstances.
However, remember that the courts don’t make the decisions in most divorce cases. Most divorce settlements are reached through multiple rounds of negotiations between the spouses and their attorneys, so you do have some options here.
Know the Tax Implications of Each Option
As you discuss your options with your divorce attorney, keep in mind that divorce may trigger unexpected tax consequences. Liquidating assets can trigger capital gains liabilities, and retirement assets must be split in a specific way to avoid penalties. Qualified Domestic Relations Orders, known as QDROs, allow for the division of retirement funds without tax penalties.
Leveraging Other Assets to Keep Your Retirement Accounts
You may be looking for a way to hold on to your retirement accounts and avoid the complications of dividing up your funds. There are multiple ways to do this, but the main option is to take advantage of other assets you have in your portfolio.
If you have large retirement accounts that you want to keep, you may have to trade away something else your ex-partner wants in exchange. If their primary concern is the family home, for example, this may mean giving up your share in the house to keep control of your retirement accounts. If they primarily want retirement funds for financial security in old age, you may give up rental properties that they can use for residual income.
If you are the lower-earning spouse and you want access to your spouse’s retirement funds during divorce, you should have the same expectations as you head into negotiations. You may have to give up other assets or benefits that you want, such as long-term alimony, the marital home, or other marital assets that you’d hoped to divide.
It is rare for a divorce case to give one side everything they ask for—a good compromise leaves everyone with something that they want while having to give up something else in the process. With that in mind, you have to think about what you’re willing to give up if the retirement account is a priority for you.
Turn to Kirk Drennan Law for Divorce Assistance Now
There’s a lot at stake in every divorce case, which is why it’s so important to secure a reliable legal team as soon as possible. Whether you’re facing an amicable divorce or a more contentious situation, you need a settlement that treats you and your contributions to the marriage fairly. Our team can help. Schedule a consultation with Kirk Drennan Law now by calling us at 205-803-3500 or contacting us online.
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