Retirement is a time that we all plan for in detail. Thinking about how we will spend our golden years is an exciting prospect, and we all save money to hopefully allow us to devote our retirement to our favorite hobbies. During marriage, especially longer ones, it is likely you and your spouse have accumulated significant resources in retirement.
At divorce, you and your spouse will be faced with the prospect of dividing all of your property, which includes your retirement accounts.
Wisconsin is a community property state. This means it is presumed that all marital property will be equally divided. Generally speaking, marital property is property that was brought to the marriage or acquired by either spouse during the marriage, although there are exceptions to this rule (prenups, inheritances, gifts from outside parties). This means that whatever value accrued in a retirement account during the marriage is subject to division during the divorce.
This is the case even if the retirement account was through the employment of only one of the spouses. Any value that accrues during the marriage is marital property.
Dividing retirement accounts is often more complicated than dividing other more liquid assets, such as bank accounts. Some accounts may be cashed out immediately, but others, like a pension, may not have that option. Moreover, there are often severe tax consequences associated with pulling money out of retirement accounts prematurely.
It may be possible to enter a special order called a Qualified Domestic Relations Order, or “QDRO.” A QDRO allows the account to be divided with the financial provider, without actually cashing it out, thereby avoiding potential financial penalties. Another option is to offset the value of the retirement account with another asset to avoid dividing the account at all.
For example, if your 401(k) is worth net $50,000, your spouse’s share would be $25,000. Instead of dividing the 401(k), you could instead offer to let your spouse have an extra $25,000 of other marital assets with spousal support/alimony. Whatever the method of division, it is essential that you have an accurate valuation of the retirement asset. In some cases, this may require the assistance of a professional.