Table of Contents

• What Happens To 401(k)s In A Divorce
• Are 401(k)s Taxed In Divorce?
• IRAs
• Can A Divorced Spouse Collect Social Security Benefits From Their Ex-spouse?
• Negotiate Other Assets With Your Ex-Spouse
• Change The Beneficiary Of Your Retirement 
• Working With KNK Law

One of the biggest concerns when it comes to divorce is the division of financial assets and maintaining your investments. Unraveling your marriage can cause major financial shifts and could change your path to retirement. Retirement benefits are not automatically split evenly between spouses, but if it was earned during the marriage, they are considered marital property. Your lawyer will work with both of you to divide both of your retirements, and if you both have a retirement plan, it often won’t be split 50/50. Let’s dive deeper into different types of retirement plans and how a divorce affects them. 

What Happens To 401(k)s In A Divorce

401(k)s are owned individually, but a spouse may be named as a beneficiary. These individual assets will need to be divided up, but it does not always mean you will lose a large chunk of your retirement savings. A qualified retirement plan is typically divided through a qualified domestic relations order set up by the IRS. This QRDO is “a judgment, decree, or order for a retirement plan to pay child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant.” 

This order may allow shared payments or separate interests that will be paid out to the spouse on an agreed timeline. A separate interest will be split into two parts, and the payee’s share may be put into a separate account. In a shared payment option, both spouses will proportionally split the benefit payment.

The laws of your state will also dictate how your retirement investment will be split. If you live in a community property state, for example, your marital assets will be divided 50/50. Depending on the marital assets you have, it may be better to leave both of your retirement accounts alone and divide the other assets instead. Spouses who both have retirement plans may not want to split them and can focus on splitting bank accounts, the marital home, property, vehicles, and items instead.

Are 401(k)s Taxed In Divorce?

If the alternate payee chooses to roll their split into their own account, that transaction will be tax-free. They won’t pay taxes on any of this money until they take distributions from it. Instead of rolling money into an additional retirement account, your ex-spouse may choose to take it in cash, which will subject them to paying income tax. 

IRAs

Individual Retirement Accounts (IRAs) are not included in the QDROs set by the IRS. Since these plans are not set by an employer, they can be divided during a divorce decree. One partner can transfer some or all of their IRA to the spouse’s account, without incurring taxes. 

If you don’t have an IRA, consider opening one after or during your divorce. Traditional IRAs are tax-deductible retirement options that can help you build retirement savings quickly by investing in bonds or stocks. Once you are divorced and your monthly income changes, it may be more difficult to put a large amount of your paycheck into retirement. You may need to consider cutting down on travel or recreational activities if you lost some of your retirement savings during divorce proceedings. 

Can A Divorced Spouse Collect Social Security Benefits From Their Ex-spouse?

This is determined on a case-by-case basis, but in order to qualify, the applicant will need to be unmarried and over the age of 62. They will also have had to be married to the social security beneficiary for over 10 years. Even if a spouse gets social security benefits from you, this will not affect your benefits. 

Negotiate Other Assets With Your Ex-Spouse

When it comes to equitable distribution of assets, the split may not always be exactly half. This allows divorcing spouses to discuss what assets they will benefit most from and come to a compromise that doesn’t involve losing their retirement savings. If you have other large assets like vehicles, property, or stocks. Negotiating with your spouse to give them another asset of equal value will help you keep your retirement, setting you up for success later in life. 

Change The Beneficiary Of Your Retirement 

After your divorce, make sure to change the beneficiary of your retirement if you don’t want additional assets going to your ex. Some states won’t nullify this designation after a divorce, so your beneficiary will remain the same if you don’t change it. After a divorce, change your beneficiary to one of your children or a parent to avoid your spouse getting additional funds that you have worked for after you split.

Working With KNK Law

Kaufman, Nichols, and Kaufman offer quality divorce help and legal representation for all Utah residents. KNK Law has been offering help for divorces, criminal cases, and family planning for many years, allowing us to get you the best result, no matter how complex the case. Our team is in your corner every step of the way, helping you get equitable distribution of assets during a divorce. Reach out to our team to find your lawyer and get started today!