During divorce proceedings, spouses have to negotiate terms for the division of their property. The home where they live, their furniture and their checking accounts may be subject to division.
Any assets that are part of the marital estate are at risk of division if spouses litigate. They also have to arrange to divide their shared financial obligations. Community property rules can lead to the loss of valuable resources.
Many spouses have assets that they are allowed to retain as separate property. Assets acquired before marriage, for example, often remain separate property in the event of a divorce. Financial resources can easily become a point of contention during divorce negotiations. One spouse may want to retain more than their fair share of the marital estate. Can a spouse claim their retirement savings as separate property during a divorce?
Accounts are often subject to division
It is relatively common for a retirement account to be in the name of just one spouse. The spouse funding the account may have opened it and begun making deposits long before they married. The date that they opened the account and the name on the account are not what determine if the retirement savings are divisible or not.
The timing of contributions is the main consideration in most cases. Spouses usually have to divide any retirement savings accrued during the marriage. The funds they deposited into the account were marital income, and therefore they are part of the marital estate. Deposits made prior to marriage may be exempt from division as separate property. Some spouses can also protect their savings as separate property through a prenuptial or post-nuptial agreement.
Even if the account is subject to division, spouses do not necessarily have to split the balance. They can factor in the value of the marital portion of the account when making other property division decisions. If they do have to divide the account, there are ways to do so without incurring early withdrawal penalties or risking income tax consequences.
Understanding basic property division rules, including what property is considered separate, can help people with valuable resources as they prepare for divorce. Retirement accounts are typically part of the marital estate and are subject to community property rules unless special circumstances apply.