How Divorce Affects Your Future Retirement Benefits

Retirement accounts are not immune to division in divorce.

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If you have been through a divorce, your retirement savings may have taken a serious hit. Because most people can no longer rely on traditional pensions as their sole source of retirement income, the majority of individuals contribute to a diversity of retirement funds. Understanding how divorce impacts the various types of financial accounts will help you rebuild after the dust settles.

Marital Property vs. Separate Property

Whether you will have to surrender a portion of your retirement money depends on when you earned it. If you contributed to a retirement plan before your marriage, courts usually treat that money as your separate property. Retirement funds accumulated during the marriage are considered marital property and will be divided between you and your spouse. If you have other marital assets, like equity in the home, it is sometimes possible to offer your ex a larger portion of those accounts in exchange for leaving your retirement intact.

Application of Federal and State Law

The type of account dictates whether federal or state law applies. For example, federal law controls how 401(k) and 403(b) accounts are divided. State law guidelines are used to distribute IRA accounts. Pension plans are split up according to the individual employer's vesting schedule. Most employers require you to work for a certain number of years before you can receive pension benefits. Pension valuation can be complicated and usually requires the services of an actuary or financial expert.

Qualified Domestic Relations Order

If retirement benefits must be divided, the court will order preparation of a Qualified Domestic Relations Order. A QDRO is a set of instructions that specifies how the account will be divided. It must be approved by the court and submitted to the retirement plan administrator -- usually the investment company that oversees administration of the retirement benefits. Once the QDRO is accepted, the funds are withdrawn and placed in a separate account for the non-employee spouse.

Social Security Benefits

If your marriage lasted 10 years or more, you may be entitled to receive Social Security benefits under your ex-spouse's account. Federal law allows you to collect benefits as long as you are unmarried, age 62 or older, your ex is entitled to benefits and his benefits exceed the amount you would receive on your own. Drawing upon your ex-spouse's account does not diminish the amount of Social Security he receives.