Getting a Divorce? This Is What Will Happen to Your Retirement Accounts

Overall, the divorce rate in the U.S. is falling. However, divorce rates among people aged 50 and over are on the rise. For some, that means an increased interest in what happens to their retirement accounts following divorce. Here, we lay out the basics. 

The account type matters

Like any other marital assets, retirement accounts are typically divided in a divorce proceeding. How it's divided, though, depends on the type of account and when it was established. 

For example, if  you work for one of the few companies that still provide a defined-benefit pension, it can be incredibly difficult to nail down its current value and what percentage of it should go to your spouse. With any asset as complicated as a pension, divorce attorneys normally hire a pension valuation expert to dig into the nitty-gritty details. 

Most company sponsored 401(k)s are easier to assess. Let's say you and your soon-to-be-ex both have 401(k)s and each account has approximately the same balance. It's possible that you will decide -- between yourselves or as part of a mediation -- to each keep what's yours. 

However, if only one of you has a 401(k) or one of your accounts is worth more than the other, there may be a trade-off of some sort. For example, you may agree (or a judge may order) that the spouse with less in their account gets to keep a different asset to even things out. For example, that spouse may keep a vehicle or piece of property that makes the division more equitable. 

Where you live matters

Typically, the only assets considered marital property were those gained after you were married. Any funds in your retirement accounts prior to marriage belong to you. The same is true of assets your spouse came into the marriage with. 

Most states adhere to what's known as the "equitable division" rule. In these states, judges determine what's fair under the circumstances. Let's say your spouse frequently worked out of town and because childcare was a problem, you took a part-time job to ensure the kids were taken care of. A judge is likely to weigh each of your contributions to the marriage in an effort to determine a fair distribution of assets -- including retirement accounts. 

Ideally, everything could be cut down the middle 50-50, but that's not always possible, or fair. There are states, however, that require a 50-50 split of community property. Here are "community property" states as of 2023: 

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

In each of these states, everything is divided equally, including assets and debts. So, if you live in a community property state and must share a portion of your retirement account, you'll also walk away with only half the marital debt. No matter who purchased that vehicle or ran up that credit card, the debt belongs to both of you. 

One huge caveat

When it comes time to build a new life as a single person, every dollar in the bank counts. No matter how you feel about paying a good attorney, there may be a few times in life when you'll need one. If retirement is one of your greatest concerns, look for a divorce attorney with plenty of experience working with retirement benefits. 

As keen as you may be to work out the details of the divorce with your spouse, make it a point to run things by your attorney before agreeing to anything. While the idea of a non-contentious divorce is lovely, there's no reason to leave more money than necessary on the table.