What Happens to Your Retirement Accounts in a Divorce?

One of the most important aspects of a divorce is what to do with all the money you’ve been saving for retirement. In the latest episode of Cover Your Assets, Jade and I are discussing how divorce impacts the veritable alphabet soup of retirement accounts – IRAs, 401(k)s, HSAs, 403(b)s and more. How should you split them up? How do you go about doing it? Tune in to find out!

If you are getting divorced, chances are you have retirement accounts that will need to be sorted out. While it may seem simple – can’t you just split it 50/50 like you would with your savings? – it’s actually quite complicated. 

For instance, a traditional IRA is funded with pre-tax money but a Roth IRA is funded with after-tax money. So money in a traditional IRA will be taxed when it is withdrawn while money in a Roth IRA has already been taxed and will not be taxed upon withdrawal. While they may look similar, $100,000 in a traditional IRA may be worth more like $70,000 after taxes, while $100,000 in a Roth IRA is just $100,000.

We often have people ask, “Our 401(k) is through my employer, so I get to keep all of that, right?” Unfortunately, no. Any contributions you made to a retirement account during the time you were married are up for grabs. It can get really complicated really quickly. Ideally, you can come to an agreement between the two of you. Otherwise, the courts will need to get involved.

If you do need assistance, you’ll want to get a Qualified Domestic Relations Order, or QDRO (pronounced kwa-droh). A QDRO is basically a document that gives instructions to your retirement plan administrators telling them how to split up the account(s) they oversee on your behalf. 

Filing a QDRO costs a few hundred dollars, but it can be worth it if you’re concerned about making sure things are fair. Most accounts are required to follow a QDRO, but some are not, such as IRAs and many pension plans. If you’re not sure whether you need a QDRO for your retirement accounts through work, your HR department should know.

Like I said, splitting retirement accounts can get complicated. But it’s not impossible! Ask your financial advisor for help. 

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Divorce might be the end of one chapter, but it’s also a brand-new journey filled with hope and growth. Join us for practical tips for financial empowerment and insights to make this time a little less daunting.

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