Splitting retirement assets in divorce is difficult, particularly for baby boomers. Having a basic understanding of the process in Wisconsin can help ease some of the stress.
Ideally, retirement is a time for travel and rediscovery - a time when busy Americans can take a step back from the demands of the workplace and truly enjoy life. Those who were wise began setting aside funds while they were young. These planners may have taken advantage of employer contributions and opportunities to diversify their accounts. Unfortunately, there may be one factor that was not accounted for: divorce.
The divorce rate amongst baby boomers is on the rise. Although couples divorcing in their twenties generally have less to worry about when it comes to retirement assets, those divorcing in their fifties or sixties have likely contributed a significant portion of funds to these accounts. Unfortunately, since many of these accounts depend on interest to grow over time, restarting retirement savings after the age of fifty is almost impossible. As a result, it is wise for those who find themselves in this situation to have a basic understanding of the impact of divorce on retirement accounts.
Divorce, retirement benefits and Wisconsin law
Wisconsin is one of nine states that use a community property system. This means that all property owned by the parties, except if acquired by gift or inheritance, is considered joint property, owned by both spouses. Accordingly, it is imperative to have an accurate list of all assets including retirement accounts.
Retirement plans are generally classified as either defined contribution plans or defined benefit, also known as pension, plans. Defined contribution plans are often maintained by employers and are structured as savings or investment plans. This plan can be paid as a lump sum upon retirement while a defined benefit, or pension plan, is generally paid in monthly or annual payments.
Once the accounts are known, the next step involves getting an accurate valuation of the retirement assets. After this is done, retirement plans can be dealt with in one of two ways during a divorce: offset or division. An offset requires a spouse who wishes to keep his or her retirement account intact to pay an equal amount, taking into account tax consequences, to the other party in non-retirement assets. This can be risky, particularly for those divorcing over the age of fifty since it will be very difficult to rebuild retirement accounts prior to reaching retirement age. The second option, a division, allows for the account itself to be split between the parties. The government allows a division to occur as a non-taxable event when a divorce takes place. This means that you can take one retirement account and split it without paying taxes or penalties. However, it should be noted that if a spouse wants to withdraw funds after the division occurs, then he or she will be subject to taxes and possibly penalties.
Divorce and Social Security
Pensions are not the only retirement benefit to take into consideration. Those who have gone through a divorce often qualify for social security benefits based upon their spouse's earnings. If you are divorced, your ex-spouse can receive benefits based on your record (even if you have remarried) if:
- The marriage lasted at least 10 years
- The ex is currently unmarried
- The ex is 62 or older
- You are eligible to receive social security benefits and your ex-spouse had higher earnings
Applicants who receive a spousal benefit may find it comforting to know that their ex is not notified that benefits were filed on his or her record. Also, the ex's benefits are not impacted.
Divorce and the importance of an attorney
These are just a few of the considerations to take into account when going through the property division determination portion of a divorce proceeding. As a result, those who are considering filing for a divorce or who are currently going through a divorce are wise to seek the counsel of an experienced divorce attorney. This legal professional will explain the process and help guide you through the proceeding, working to better ensure you receive a more favorable outcome.