What happens to retirement assets in divorce?

On Behalf of | Jan 29, 2021 | Family Law

When couples in Massachusetts decide to divorce, the spouses find themselves having to make a lot of hard decisions. These decisions include the division of assets, something that can create confusion and animosity during and after the divorce.

Asset division issues

Massachusetts is an “equitable distribution” state in which marital assets are divided equitably between the spouses. Under family law, assets are divided in a way that makes the most sense for the spouses, given their abilities to support themselves after the divorce and eventually rebuild their financial situations.

Retirement assets in divorce

For many couples, retirement assets can reflect a significant portion of their net worth. Retirement assets earned and invested during the marriage can be considered part of the marital estate and are subject to division. It is important for both parties in a divorce to disclose all retirement assets, including IRAs, 401(k)s, and pension plans.

In some cases, a spouse may be able to keep his or her retirement asset intact in exchange for giving the other spouse a similarly valued asset or agreeing on cash payment. Older spouses who divorce and who are concerned about their 401(k)s may qualify for a process that allows them to roll over the 401(k) into an IRA, thus giving them more control over the funds as they are distributed in the divorce.

QDROs and divorce decrees

It should also be noted that the distribution of some retirement assets, including 401(k)s and pensions, require an extra step. Unlike a standard divorce decree, which can divide assets such as real estate and savings accounts, a court must issue a Qualified Domestic Relations Order (QDRO) that will then direct pension and 401(k) managers to appropriately divide the assets.

Because of the complexity of cases in which spouses own significant retirement assets, it may be wise to engage the services of an experienced family law attorney as well as financial and accounting professionals who are familiar with asset division issues.