Some people have amassed quite a bit of money in their 401(k) or IRA accounts, so it's understandable why an unhappy spouse may be concerned about the notion of getting a divorce and losing half of their retirement assets.
If you are considering divorce and one or both of you have a retirement account, then how would you split the assets held in a 401(k) or an IRA? It depends. You and your spouse can decide to award all of the money in the account to one spouse, or you can decide to split the money up.
Let's say you have been employed with the same company for 20 years, but you have been married for 10 years. If you have been paying into your 401(k) since you first started your job, your separate estate would have a claim to that portion of your retirement account.
Under the laws in some states, the courts take a look at the balance of a 401(k) or IRA account on the date that the couple wed and they consider that amount the spouse's "separate" property, but everything after the wedding date is subject to division.
It's Smart to 'Divide by Percentages'
If you or your spouse have a 401(k) or IRA account to divide, we highly recommend dividing by percentages, rather than dollar divisions. Why? Because, if you divide an account by a dollar figure and the market takes a dive after you've reached an agreement, then your share will be affected accordingly.
For example, let's say a husband's account is worth $300,000 at the time the couple makes an agreement, but the value of the account dropped to $150,000 by the time it was divided up.
If the husband agreed to give his wife $150,000, the husband is going to walk away with nothing. He will not be happy about that. That's why it's much better to split a retirement plan according to a percentage amount vs. a dollar amount.
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