Key Tips for Protecting Your Retirement Accounts During a Divorce

If you’ve working on a nest egg for your retirement for many years, there are steps you should take to help protect your assets if you get divorced. Any retirement assets could be subject to the property division process which is known as equitable distribution in New York. If you are the party who maintains the retirement account or pension, it is important that you commence a divorce action quickly as the filing date is the “cut off” date of your spouse’s interest in the plan.

Consider the following actions:

• Do not take early withdrawals: Your divorce will likely cost you a lot of money — there’s no getting around that. Between dividing up assets and having to pay for legal fees, it’s going to be a major financial burden. Avoid the temptation to break open your retirement savings to help pay for these expenses. Taking money out of a retirement account too early may result in considerable financial penalties, including income tax penalties.   Additionally, if a divorce action is pending, there are restraining orders that prevent most withdrawals.
• Offer other assets: If you and your spouse are negotiating the terms of your divorce outside the courtroom, consider offering up other assets in place of the money you’ve put in your retirement account. Or, at the very least, you could attempt to limit the amount of money your spouse takes from the account. Consider all the implications of giving certain assets to your spouse and whether you’ll be able to come to an agreement that works for both of you.
• Change your beneficiaries: While changing your beneficiaries will not necessarily prevent you from losing any value from your account during the divorce process, it still protects what happens to your money if you should pass away. You likely no longer want the money to pass to your former spouse, so make sure the beneficiary is a person of your choosing once the matter is concluded.  However, keep in mind that you cannot change beneficiaries during a divorce action.
• Think about the tax implications: Different retirement accounts have different tax implications. A 401(k) and a traditional IRA are pre-tax contributions, but a Roth IRA is a post-tax contribution. This means, depending on the kind of account you have, the amount of money in that account might not actually reflect what you would be getting due to taxes. This could affect your strategy in divorce proceedings.

For more information on protecting your financial interests during a divorce, work with an experienced family law attorney at Jakubowski, Robertson, Maffei, Goldsmith & Tartaglia, LLP.