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4 ways to protect your retirement accounts during a divorce

On Behalf of | Feb 1, 2023 | Divorce |

Divorce is a complex process, but it can be especially challenging if you are nearing retirement or face a high-asset divorce. In these cases, your retirement accounts could be in jeopardy, and you could face hefty fines and taxes if you liquidate part or all of these accounts.

Therefore, these are a few strategies you should consider if you face a high-asset divorce and want to preserve your retirement accounts.

1. Keep accurate records

All the money you contribute to your retirement accounts before you got married belongs to you. However, you need to be able to prove the balances in your accounts prior to your wedding day.

Keep accurate records of your contributions as well as those of your spouse during your marriage because his or her contributions can reduce or eliminate any distributions from your accounts to your spouse.

2. Learn how retirement accounts are generally split

You also need to learn how a judge could divide your accounts. Typically, a judge will look at your contributions during your marriage. For example, if you contributed 100,000 during your 10-year marriage, this money is eligible for distribution. Your spouse is likely entitled to $50,000 of this money.

3. Meet with a financial professional

A financial planner, advisor or pension plan administrator can help you determine how much of your accounts are eligible for division. You should also review any legal documents, such as prenuptial agreements, support orders or wills.

4. Negotiate

Negotiate with your spouse. Offer other assets in the place of cash from your retirement accounts so you can avoid the tax liabilities and penalties you may face and keep your retirement secure.

Learn about the benefits of a hardship divorce withdrawal, which can reduce or eliminate your withdrawal penalties.