Divorce and Retirement Benefits

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A divorce can affect everything that you own including your retirement benefits. There is a strong possibility that some of your benefits and investments will have to be divvied up in a divorce case. A divorce can also affect the benefits that you receive for years to come.

 

There are some ways to alleviate the effect of divorce on retirement benefits. Before you take that step you should find out what your rights are what your spouse is legally entitled. Then you can plan a course of action that can benefit both parties.

 

Get Some Legal Advice

Even if you and your spouse agree to an amicable divorce and a settlement you may still need to work with a divorce attorney. Any agreement you work out will have to be legally binding. The laws in every state are different but most of them provide for some sort of no-fault divorce. You might be able to work out a settlement that will not cost much.

 

When you see the attorney lay out all of your retirement investments and ask her what the impact of the dissolution will be upon them. Also ask about taxes and how the proceeding will affect them. If you end up rolling over any funds be sure to roll them over with a 1035 exchange. If the funds are not placed directly into another retirement vehicle they could be subject a 10% tax penalty.

 

If there is any support of dispute you should definitely get your own attorney. You will need somebody looking out for your interests and protecting your retirement income. In a nasty divorce your spouse’s lawyer will be definitely not be looking out for your best interests.

 

How Divorce can Impact Retirement Benefits

A divorce’s impact on retirement benefits and potential retirement benefits can be affected by many different factors. Prenuptial agreements, state laws, legal precedents and the contracts governing benefits can all have an impact.

 

The funds in an IRA or 401k can be divvied up between spouses or awarded to one spouse. These should be left in retirement vehicles because of potential tax penalties. The money in an annuity can be affected by the spouse’s agreement and the wording of the contract that created it. It could be possible to simply split future annuity payments between two beneficiaries.

 

Something that can affect a retirement plan is the amount of money an individual put into one before the marriage. If a Frank put most of the money into the plan before he married Greta and they divorced he could be awarded most of those funds. Frank could also buy out Greta by writing a check equivalent to the funds in the plan.

Divorce and Other Benefits

Divorce will only impact Social Security benefits if one of the spouses was no working. Betty was a stay at home mom for several years while she was married to Barney. Therefore she could be entitled to some of Barney’s Social Security benefits. Pensions are usually treated much like IRAs by divorce courts so the court may give a spouse a percentage of one.

 

Prenuptial Agreements

If you are getting married later in life and you or your potential spouse have substantial retirement benefits you should definitely consider getting a prenuptial agreement. Such an agreement can help you avoid divorce court and protect your future benefits. No matter what your age is you should make sure that retirement benefits are covered by your prenuptial agreement. If a large amount of money is involved such an agreement should definitely be written by an experienced attorney to ensure that it is legal.