Divorce means tackling major decisions and difficult transitions. Spouses need to begin planning for independent lifestyles. They also need to divide their property and debts. The asset division process begins with the creation of an inventory of assets and debts. Spouses have to disclose all of their holdings to one another. They also have to discuss any debts accumulated during the marriage.
Some property is marital, which means it is subject to division under equitable distribution laws. Other assets are separate property. Spouses typically retain their separate property after the divorce. They do not have to divide it, but judges may consider the value of each spouse’s separate property as one of many factors when deciding how to fairly divide marital resources between spouses.
Properly identifying separate property can give spouses valuable nest eggs for financial redevelopment after a divorce. Can those who have funded retirement accounts treat them as separate property when preparing for financial negotiations?
Starting a separate account does not make the contents separate
People sometimes misunderstand what assets are separate and what are marital during divorce proceedings. It is common for people to assume that any property held in their own names and not owned jointly with a spouse is their separate property.
However, the names on accounts and asset ownership documents are not the most important factor when dividing assets into marital and separate property. Instead, what matters is when spouses acquired the property and whether they used marital income.
Some people may have started their retirement accounts before marriage. Still, if they continue to contribute to the same account during marriage, at least a portion of their savings may be subject to division. Spouses need to calculate how much of the account is separate based on the timing of deposits and how much is marital.
Divorcing couples can then begin to negotiate a fair way to address those accounts. They can divide retirement savings. They can also factor in the value of the account when making decisions about other marital property and marital debts. There is no rule that says spouses must directly divide retirement accounts, but they often need to consider deposits made during the marriage when deciding what happens to the retirement account and other marital property.
Learning the basics about asset division can make it easier for people to protect their financial interests as they navigate divorce proceedings. Retirement accounts and even pensions are often subject to division when married people divorce.