How to Protect Your Retirement Finances After a Divorce


One in four divorces are to couples over 50. Since retirement accounts are often a large chunk of an individual’s assets at that age, it is important to protect your retirement finances before and after you split up.

The Government Accountability Office reports that divorce results in a 41% reduction in household income for women and a 23% reduction for men. A divorce decree will dictate the division of physical property. However, retirement plans and pensions can be sizable assets. “The National Bureau of Economic Research” reports that married couples have a median of $111,600 in retirement savings. How do you protect your retirement in a divorce? The answer is being knowledgeable and proactive.

How Does Retirement Work in a Divorce?

A spouse can keep any retirement accounts they acquired prior to the marriage. Retirement funds added during a marriage are joint martial property. They will be divided by court order if the couple splits. If both spouses have a similar retirement assets, both typically walk away in a divorce with their own accounts. However, when assets are lopsided or all of a couple’s retirement savings are in one spouse’s account, division becomes more complicated.

Ex-Spouse’s Rights to Social Security Retirement Benefits in a Divorce

In the past if you had been married to your ex-spouse for at least ten years, you could receive a portion of their social security benefits. Once you reached retirement age, if you were single, you would receive either your earned benefits or your share of your ex-spouse’s payments, whichever was larger. This applied even if your ex-spouse had remarried. If the ex-spouses have been divorced for at least two years and were either 62 or older, then one ex-spouse could claim benefits based upon the other’s earnings, even if the other spouse had yet to file. Recently, the Social Security Administration changed the rules. Those born on or after Jan. 2, 1954, can now automatically file for all available benefits (both ex- spouse’s as well as their own) when they claim their own Social Security benefit. They will automatically receive the highest benefit available. If an ex-spouse dies, the other has the option of claiming survivor benefits first and suspending their own benefits until age 70.

How to Protect Your Pension in a Divorce

The laws governing pensions vary in each state. Monthly benefits can be divided, waived, retained or transferred between ex-spouses. In addition, most pensions offer survivor benefits. A non-working spouse has the option to retain this benefit. However, that individual may come out ahead by waiving the survivor benefit and having the ex-spouse purchase a life insurance policy, naming them as the beneficiary. This will be also protect the non-working spouse if the pension survivor benefit stops if they remarry before a certain age. For instance, a pension paid to a retired US military member has a survivor benefit that ceases if the ex-spouse remarries before 55. The best way to protect your pension in a divorce is becoming familiar with the rules.

How to Keep Your Pension in a Divorce

The best way to keep your pension benefits is to spell it out in the divorce decree. Send documents to the pension plan custodians and keep copies in a safe place. Under the Pension Protection Act if 2006, private pension plans are required to accept any court order. You want to get the documents sent before assets distribute. If the pension holding ex-spouse has serious health issues or is terminally ill, make sure you are designated as a survivor. This assures you collect benefits if they pass away.

How to Protect Your 401K in a Divorce

401K plans or Individual Retirement Account (IRA) are martial assets and become divided in a divorce. Federal laws determine the handling of 401K funds while state laws dictate the division of IRA’s. Many women often assume that the divorce settlement agreement will protect their rights to a portion of their husband’s retirement accounts. However, if a divorce settlement states that you are dividing a 401K, the court must file a Qualified Domestic Relations Order (QDRO) before the divorce is final. The QDRO instructs the plan’s administrator to pay the non-employee spouse’s share of the plan benefits. The QDRO allows the funds in the 401K to be split and the non-employee’s share to be withdrawn without taxes or early withdrawal penalties and deposited into an IRA.

Important To Note to Protect 401K during Divorce

The most important thing to remember in protecting your 401K or IRA during a divorce is to come to an agreement with your soon-to-be ex-spouse and get everything in writing. The divorce decree must have language such as, “my spouse is entitled to x percent of my 401K balance”. If the division of assets is not stated clearly, the spouse of the plan participant could receive nothing. A verbal agreement is not binding to process a rollover under QDRO rules. In addition, any loans owed inside a retirement plan counts as 50-50 liability. For instance, if a spouse takes a $5000 loan from a $200,000 401K account, the split is calculated on the remaining balance. Also, remember that taxes affect the future value of a retirement plan. Funds in a 401K are worth less than in a ROTH IRA since the 401K funds are pre-tax.

How Do I Protect My Retirement In a Divorce?

The best way to protect your retirement in a divorce is by deciding ahead of time how to divide assets, including retirement assets. A good offense is the best defense. A non-participant or non-owner has the right to obtain information about a spouse’s retirement plans and balances. Financial experts recommend having an attorney draft a prenuptial agreement. However, many plans and accounts have specific rules when it comes to dividing and transferring funds. Laws vary in different states. Learn the rules and understand how funds are handled if there is a divorce. Failure to follow the rules can lead to losing some or all of your assets or having your ex-wife (or ex-husband) “go after your retirement”. Make sure to send out court orders and divorce agreement documents to plan custodians before dividing assets. Close out joint banking accounts and set up separate ones.

While the financial aspects of divorce are challenging, divorce after retirement can be especially complicated. Understanding your rights is important. Moreover, getting the assistance of an attorney, mediator or QDRO specialist can help guide you through the process.