Retirement accounts in divorce

You worked hard to get where you are, and it seems like you’ve been planning for retirement for most of your life. But you never thought you’d be getting a divorce, and now your retirement could be in jeopardy.

Any property that you earn while you’re married can count as a shared asset, and that includes your retirement accounts. Courts in Pennsylvania abide by the equitable distribution method, which means your spouse could end up with a piece of your retirement plan.

Identify commingling

The first step is to figure out timelines. If you established a retirement plan before you married your spouse, then that area is usually considered separate. But once you’re married, that could be the start of a marital asset. If you formed the plan during your marriage, then the entire sum could fall into the shared category.

Defined benefit plan

This is usually the form that pensions take. The payments come after you retire, which can make calculations a little tricky:

  • Sponsorship: Your employer is the sole sponsor for this type of program. Things like how long you work at your company and your salary history help decide the benefits.
  • Estimations: Pensions can be hard to value since they pay into the future. You may have to get an estimate, with a value based on your salary, how long you’ll be employed and how long you’re likely to receive your pension.
  • Now or later: Courts could go for a deferred distribution or an immediate offset. A deferred distribution means your spouse could have a plan identical to yours set up. Or an immediate offset means the court will decide the value of your pension and cover that amount with other assets you share.

Defined contribution plan

IRAs, 401(k)s and profit-sharing all fall into this category. These plans can grow or shrink over time, so considerations often need to be made for specific cases:

  • Matching: You and your employers fuel these plans, sometimes through matching funds.
  • Check the time: Valuation on contribution plans comes down to figuring out timeline overlaps with your marriage. Consideration may need to be made for changes in value because of things like loans against the plan.
  • Sharing: The court might require you to rollover funds to a new plan for your spouse or liquidate the plan altogether and split the money, with taxes and penalties likely taken into consideration.

Make sure you understand what counts toward marital assets in Pennsylvania, and how it could affect your retirement savings. Knowing the specifics can go a long way toward making sure the retirement you’ve been planning for is the one you get.