What happens to retirement benefits in divorce?
Whether you have spent years investing in a 401(k) or will receive a pension when you retire, financial stability in your later years may depend on your retirement benefits. If you and your spouse decide to part ways, your divorce will likely impact your retirement benefits. How might divorce impact your future financial health?
How are retirement benefits addressed in a Wisconsin divorce?
While your name may be the only one on a 401(k) or other retirement savings account, that does not mean your benefits are off-limits to your spouse.
In Wisconsin, you and your spouse both have a claim to all property in your marriage—including your retirement savings. As a result, in most cases, the court will divide your retirement accounts alongside the money in your bank account and other property. Except for gifted or inherited property, the division of your assets is required to be equal unless the court determines that another arrangement is fair and equitable based on a number of factors that the court must consider. There are a number of factors that would allow a court to consider something other than an equal division and you should speak to a lawyer about the facts of your specific case to see if any of the factors apply to your situation.
In addition to splitting your retirement savings between you and your spouse, the court may also divide pension plans in divorce. As the Wisconsin Department of Employee Trust Funds points out, courts may grant your spouse up to 50 percent of your pension benefits in a divorce.
How can you minimize the impact of a divorce on your retirement assets?
If your objective in a divorce is to keep your retirement accounts intact, you may be able to accomplish this objective by offsetting your retirement from another asset. For example, you may allow your spouse to keep the family home in exchange for retirement benefits with a similar value. It is important to discuss a potential offset with a lawyer because retirement accounts each have their own nuances and tax consequences that make it challenging to ensure you are agreeing to an equal exchange.
If a division of your retirement is unavoidable, it is important to understand that the division can be accomplished without any taxes or penalties being incurred by either party. The implementation of a Qualified Domestic Relations Order (QDRO) would accomplish a division (in whatever percentage is agreed upon or ordered) without either party experiencing a taxable event.
Retirement division and offsets are complicated. While your divorce may impact your retirement savings, there are options available to minimize the long-lasting impact of divorce on your retirement. Call Nelson, Krueger & Millenbach, LLC at (414) 258-1644 to schedule a free consultation with one of our attorneys to discuss all of your options to ensure you come out of a divorce in the best financial position possible.