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Dividing retirement accounts in divorce

Your retirement assets are significant, perhaps more valuable than any other single asset that you own. When you start heading toward divorce, what happens to these assets? Do you need to divide them with your spouse?

You may. Retirement accounts built up during marriage generally count as marital assets -- barring the use of a prenuptial agreement or something along these lines -- and have to get split up like other financial assets. You can do this with a Qualified Domestic Relations Order (QDRO).

Future payments

One thing to consider is that the benefits may only get paid out in the future; you're not getting that pension yet. You don't have an asset to divide at the moment of divorce. Instead, the QDRO establishes what percentage of those payments should go to your ex when you do start getting them in the coming years.

Dividing based on time

The typical way to divide a retirement account is to look at the time you stayed married and the percentage of the account built up during that time. Your ex does not usually have any rights to assets from before or after the marriage.

For instance, maybe your pension is based on 40 years of employment. Ten of those years happened before your marriage, and the other 10 will happen after your divorce.

Your ex may have a right to 50% of the pension while the two of you were married, but that doesn't mean 50% of every payment. You only earned half of your pension during your marriage. Your spouse gets 50% of that half, or 25% of the total.

That said, there are even exceptions to this rule. It is important not to assume that you can divide things up evenly.

For example, some people front-load their pension contributions early in their careers. They don't have families, children and other expenses, so they put everything they can toward retirement.

If you did that, it could mean that you built up far more of your retirement plan before you got married. You need to know the exact totals so that you can adjust the percentages accordingly. Your ex only has a right to assets you got after the wedding and before the divorce.

Your rights

That's just one example, but it shows you why these cases sometimes get very complicated. With important assets on the line, it is crucial that you know all of your rights and exactly what steps you have to take as you move through your divorce.

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