Don’t Overlook Retirement Assets in a Divorce
Today, approximately 50% of all marriages end in divorce—and the financial consequences can be devastating.
A Word to the Wise
If you find yourself going through a divorce, it is important to consider your and your spouse’s retirement account assets when negotiating your property settlement. Any vested rights in a pension plan, as well as any vested account balances in a defined contribution plan (such as a 401(k), 403(b), or 457 plan) or in an Individual Retirement Account (IRA), are considered marital property.
Preparation Is Key
Retirement assets can be a couple’s largest asset to be divided. When compiling your list of assets, be sure to use the latest copies of your financial accounts, including statements from all pension and retirement plans. And don’t forget any benefits from prior employers that you and your spouse may be entitled to.
If You Are Awarded Retirement Assets in Your Divorce
If you are awarded retirement benefits in your divorce, you or your legal adviser must:
- Legally ask for your share of any retirement benefits—by requesting a Qualified Domestic Relations Order (QDRO) from the court. (A QDRO spells out the amount and terms of your awarded share of your former spouse’s retirement plan.)
- Send the QDRO to the plan administrator of each retirement plan from which you have been awarded a benefit.
Other Things to Check
- Ensure that the types of investments held within each account are split proportionately.
- Find out about each plan’s survivor’s benefits, and what happens if your ex-spouse dies before (s)he retires—or what happens to the benefits if you remarry.
The bottom line? Be sure that all the issues associated with your retirement benefits award(s) have been resolved before your divorce is finalized. This may save you additional time and money later.
How Your Social Security Benefits May Be Affected
- If you were married for at least 10 years, you may be entitled to a portion of your ex-spouse’s Social Security benefits, which could be higher than your own.
- Any benefit you receive from your ex-spouse’s Social Security benefit will not affect the amount of their benefits or that of anyone else (including a new spouse, should they remarry).
- If you remarry, you generally cannot collect benefits on your former spouse’s record unless your later marriage ends in death, divorce, or annulment.
- The rules are complicated, so contact your local Social Security office or call their toll-free number, 1-800-772-1213, if you have specific questions about your future benefit.
Be Sure to Reassess Your Financial Situation
To help yourself protect your assets, it’s a good idea to enlist the advice of a financial planner in addition to your legal adviser. And because your financial picture will most likely change after your divorce, you may wish to consult a financial professional or a Certified Prudential Retirement® Counselor* for assistance in determining how your new financial situation may affect your retirement planning strategy. Simply call 1-877-PRU-2100 toll free, Monday through Friday, from 8 a.m. to 6 p.m., ET.
Divorce is never easy, but with the right planning, you can help to ensure that your retirement dreams won’t get lost in the shuffle. And happily married or otherwise, only you can be responsible for your own financial future.
*Retirement Counselors are registered representatives of PIMS. Many of Prudential Retirement’s Personal Retirement Services Retirement Counselors carry the distinct designation of Certified Retirement Consultants, an advanced certification available through the International Foundation for Retirement Education (InFRE). Certification includes mastery of retirement plan design, investment strategy, retirement income management, and retirement readiness and counseling.