The divorce process requires you to review the finer details of your financial situation. From the money in your bank account to your family home to your retirement savings, any and all assets will come to light.
Depending on your age, it's easy to look at your retirement savings and assume you have better things to focus on. After all, you're many years away from leaving the workforce for good.
However, if you take this approach now, you may regret it later in life if you don't have enough money to retire.
Here are some things you need to know about divorce and retirement:
- Retirement funds are often treated as marital property: For example, if your ex has the legal right to a portion of your retirement funds, which often includes Social Security, you must work this out in your divorce.
- A qualified domestic relations order can help: If you have retirement assets to share post-divorce, a qualified domestic relations order can help you manage the process. This is a court order that outlines the process and procedure for distributing future retirement benefits. For example, your benefits administrator is able to distribute funds as if you're married, not divorced.
- IRAs are often complicated: In the event of divorce, the court often considers an IRA individual property. But there's a catch. If you contribute to your IRA account from earnings you've made during your marriage, your ex may be able to stake claim to some of the savings.
- Understand the tax implications: When it comes to retirement funds, tax implications always come into play. For instance, if you receive IRA funds, you could make a mistake that subjects you to a 20% federal income tax and an early withdrawal penalty. There are ways around this, such as rolling the money into an individual IRA, but you need to make the right moves.
Regardless of your age, you should always have your eyes on retirement. When the day arrives, there's no better feeling than knowing that you have enough money to enjoy yourself.
While divorce is likely to affect your retirement savings, don't make decisions that you may regret down the road.