Did you know that retirement assets are a couple’s largest asset? Like many, you probably saved and invested most of your working life in various retirement accounts, building a healthy nest egg to support you when you stop working.
However, if you are in California, these assets are community property and may face division, as well as high taxes and penalties. These are ways to protect your retirement assets during a divorce.
Maintain your records
The assets you accrue prior to your marriage are often considered yours in a divorce. This includes any money you invested in your retirement. Therefore, keep accurate records to ensure that these monies are not included in your marital property valuation.
In addition, anything your spouse invested during your marriage can offset your contributions. For example, if you both contributed $500,000 to your separate 401(k) accounts, your accounts offset each other, so you should not have to divide your retirement.
Get an accurate valuation
It is challenging to truly evaluate a retirement account due to the taxes and penalties you may face as well as the future interest you lose. However, some finance experts can come help. Therefore, work with professionals during your asset valuation process.
Prepare to negotiate
Consider negotiating with your spouse. You may have to give up other assets, but you can protect your retirement. You may also suggest that you both wait for distributions until you cash out the policy. Then, you can both receive retirement payments from the plan based on the amount decreed by the judge in your divorce case.
If you have no choice but to divide your retirement accounts, look into programs that allow you to reduce or eliminate taxes and penalties, including hardship options.