Will My Ex Get Half of My Retirement in a Divorce?
Depending on when you started your retirement account, what money you used to fund it with, and other circumstances of your financial situation, yes, your spouse may get half of your retirement fund in a divorce. Knowing that your soon-to-be ex-spouse may be entitled to half your retirement account can be difficult to swallow. You worked hard to build your retirement fund, and losing half of it can dramatically affect when and how you retire.
Common types of retirement accounts:
- IRAs
- 401(k)s
- Defined-benefit pensions
If it is determined that your spouse is entitled to half or part of your retirement account, the type of account you have will affect how and when your retirement account is split. In some cases, one spouse may get a lump sum payment for their share of the retirement account. In other cases, the spouse who is owed the retirement money may wait until the account starts disbursing benefits and collect their share of those payments at that time.
Keep reading to learn more about how retirement plans are divided during a divorce.
Understanding How Property Division Works in Colorado
You may be asking yourself why your former spouse is entitled to a portion of your retirement account or pension, especially if your spouse didn’t work during your marriage and you were the only one contributing to the account. The reason can be traced back to Colorado’s property division laws and the distinction between marital and separate property.
Because Colorado is an equitable distribution state, all marital property must be divided fairly between both spouses. This does not always mean a 50/50 split, but it frequently means that retirement accounts are subject to some sort of division.
Keep reading for answers to more frequently asked questions about divorce and retirement.
Does the Account Have to Be Split 50/50?
Your retirement account does not necessarily need to be split equally. As stated above, the goal of property division in Colorado is to ensure an equitable, fair split of the divorcing couple’s shared assets. There is no one-size-fits-all approach to dividing retirement accounts. Instead, it is recommended that couples work with their attorneys (and possibly a mediator or other professional) to negotiate a fair settlement that serves them both.
Three alternatives to a 50/50 split of your retirement account:
- One spouse keeps the retirement account in its entirety in exchange for some other equally valuable asset, such as the family home or a vehicle.
- The spouses agree to split the retirement account based on the contributions each made to the account during the marriage.
- One spouse keeps the retirement account in exchange for taking on more of the couple’s shared debt.
Some couples may also have provisions for their retirement accounts in a prenuptial agreement or other marital agreement. If you have one of these documents, it is important to review it before the property division process to ensure that all provisions are addressed.
What Happens if I Started My Retirement with an Inheritance?
Inheritances generally are not subject to property division as they are usually categorized as separate property. Similarly, earnings made from an inheritance are also kept separately. If your retirement account was funded with an inheritance, and you never contributed anything else while you were married, the entire account may be excluded from property division. However, suppose you commingled the retirement account with money from other resources identified as marital property. In that case, the retirement account will be subject to property division, at least in part.
Do I Need a QDRO?
First off, let’s define what a QDRO is. A QDRO, or a Qualified Domestic Relations Order, is a document required by the IRS when an employment-related retirement plan must be divided after a divorce. This means that if you have a defined-benefit pension plan or a 401(k), you will need a QDRO. If you have an IRA, you will not need a QDRO.
Are you getting divorced in Colorado and have questions about what will happen to your retirement or investment accounts? Reach out to the Law Office of Alexandra White, PC. Our team can help you understand how the property division process will affect your retirement and overall financial health.