Divorce is a challenging and emotionally charged process, and one aspect that requires careful consideration is the protection of your retirement assets.
Ensuring your financial stability post-divorce is important, and taking proactive steps can make a significant difference in safeguarding your hard-earned retirement funds.
Understanding your assets
In 2021, 948,864 married women pursued a divorce, and many of these couples had retirement assets that were subject to division. Therefore, you should gain a clear understanding of your retirement assets. Compile a detailed list, including pensions, 401(k)s, IRAs and any other investments for you and your spouse.
Valuation and division
The courts can divide your retirement assets during divorce proceedings. Therefore, you need to determine the current value of each asset accurately. This valuation will help in negotiating a fair and equitable distribution. Consult with financial professionals or use online tools to get accurate estimates.
Consider a Qualified Domestic Relations Order
A QDRO is a legal order that establishes the right of an alternate payee to receive a portion of the retirement benefits. Work with your legal advisor to include a QDRO as part of the divorce settlement.
Evaluate the tax implications
Retirement assets have different tax implications. Understand the tax consequences of the division and make decisions that minimize your tax liability. Seek guidance from a tax professional to make informed choices that align with your long-term financial goals.
Update beneficiary designations
After a divorce, review and update the beneficiary designations on your retirement accounts. Failure to do so could result in your ex-spouse receiving the benefits, regardless of the divorce settlement.
After your divorce gets finalized, develop a new budget that reflects your post-divorce financial situation.