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Dividing a retirement account in a divorce

30529625_S.jpgIn Missouri and around the country, the divorce rate is rising among people over 50. This age group was two times more likely to get divorced in 2014 than they were in 1990. People over 65 were three times more likely to end their marriages in that year compared to 1990.

This means that retirement accounts are a big concern for many divorcing couples. Usually, retirement accounts are treated as marital property. This is the case whether one or both couples has been contributing to an account. In some cases, a spouse might prefer to take the house rather than their portion of the retirement account. However, this is a decision that should be considered carefully. A dependent spouse might not realize the worth of the account. If a person has contributed the maximum amount to a retirement account throughout their life, its worth might be close to $1 million. Furthermore, there may be significant expenses associated with maintaining a house.

Taking taxes into account is also important. Roth IRAs and Roth 401(k)s are funded with income that has already been taxed and thus withdrawals are tax-free. However, withdrawals from other types of accounts are subject to tax. Couples should make sure they take this into account when calculating the value of these types of accounts. If two people are in different tax brackets, then the same distribution could ultimately pay less to one of them, so this should also be accounted for.

The end of a marriage can be a difficult time that may involve having to make practical decisions in an emotional state. People should be sure to consider their long-term financial well-being. While it can be important to compromise and be flexible, they should also be sure that they do not give up assets that are important to them because they want the process to end quickly. An attorney might provide helpful guidance to a client in this regard.

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