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Quality Family Law Representation

“BECAUSE IT MATTERS”

Quality Family Law Representation
“BECAUSE IT MATTERS”

Is your retirement account your separate property?

On Behalf of | Nov 22, 2022 | Divorce |

It is hard to predict what your financial circumstances will be like after a divorce. Unless you already have some agreement with your spouse, your negotiations with one another or the outcome of your court case will directly influence what resources you have when you start rebuilding later.

In Kentucky, state law requires an equitable or fair division of marital assets if you go to court. You have the option of either negotiating whatever terms you and your ex agree would be fair or relying on a judge to resolve your disagreements.

If you have a retirement account that you started before marriage or that is a benefit related to your employment, such as a 401(k) where your employer matches your contributions annually, you may expect to retain those savings as your separate property in your divorce proceedings. Will that be possible in a Kentucky divorce?

Retirement accounts are often marital property

Although retirement saving funds are frequently held in the name of only one spouse, you add to them using marital income, making your contributions during the marriage part of your marital property. If you had the foresight to negotiate an agreement protecting your retirement account prior to marriage, then you won’t have to worry about dividing it now.

Otherwise, the courts will likely treat it as marital property and will expect you to divide the account or at least consider its value when dividing your other assets. The amounts contributed during the marriage, including contributions by your employer, will be subject to division.

Will divorce trigger penalties?

There are tax benefits to making retirement contributions, and therefore the government imposes taxes and early withdrawal penalties to deter people from making early withdrawals. You may pay thousands of dollars in fees and taxes due to an early withdrawal.

However, if you divide the account as part of a divorce, you can have an attorney draft a qualified domestic relations order (QDRO). When properly submitted to the plan administrator, a QDRO will allow for the quick division of the account without any penalties. Even if you have to share your retirement savings, you won’t have to worry about additional losses because of fees and penalties.

Learning more about property division rules can help those preparing for a complex Kentucky divorce.

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