When couples enter a divorce, the thought of needing to give up retirement savings in order to pay for the divorce can be terrifying. Neither spouse wants to rebuild their retirement assets after a divorce, and the process of doing so can be complicated because qualified retirement plans have certain restrictions. For example, you can lose hundreds of thousands of dollars from your 401(k) during a divorce, but you can only invest around $18,000 a year. Or $24,000 if you are over 50. Fortunately, there are ways that you can recover retirement plans after a divorce.
What Can I Do to Protect My Retirement Savings During Divorce?
- Get a Qualified Domestic Relations Order (QDRO). If you are concerned that your spouse’s employer will pay out the benefits to your spouse/ex-spouse, which could leave you with little to nothing in assets, you should consider getting a QDRO. This can protect you by ordering your spouse’s pension plan to pay your just share of plan benefits. Your QDRO will guarantee that your marital settlement agreement doesn’t permit the retirement assets to be separated and spent without penalty. These orders only apply to retirement plants that are IRA tax-qualified and covered by the Employee Retirement Income Security Act (ERISA).
- Consult your attorney or specialist. The divorce court, as well as your retirement plan’s administrator, must approve your QDRO before it can be technically qualified. Your family law attorney can give you the appropriate forms for your QDRO, and he or she can also help you draft the specific wording of the order as well. Your lawyer can read the retirement plan’s summary plan description, as well as other legal documents related to your QDRO, that will help both of you understand the terms of your plan.
- Understand what your payout will look like. If you got married to your spouse with funds already in your retirement plans separately, those funds are usually handled as separate property during a divorce. If your spouse if covered by a 401(k), for example, the timing of your payment will depend on his or her specific plan. Some plans will require an immediate payout, while others will allow lump sum payments later on and periodic payments.
It’s crucial that you take the right legal steps and actions in order to protect your assets and legal rights during a divorce. If you would like more information on what will happen to your retirement savings during your divorce proceedings, contact our San Jose family law attorney at the Law Offices of Thomas Nicholas Cvietkovich today for a free and confidential consultation.