Getting a divorce includes dividing all marital assets, which are assets earned by either
party during the marriage. Retirement accounts, which include pensions, IRAs, 401(k)s
and certain qualified retirement plans are subject to division for any portion earned
during the marriage. It matters not whose name is on the account. If earned during the
marriage, it must be equitably divided.
401k’s, IRA’s and other forms of retirement investing work over the long-term. By
combining consistent contributions with tax breaks and smart investing, these accounts
can grow significantly over a 20-30 year period, creating a nice retirement nest egg for
the participant. Some portfolios can reach well over $1 million by the time they mature.
If the funds were earned during the marriage, you will most likely be giving your spouse
half.
Community Income
While researching divorce and retirement, you are going to hear a lot about community
income. This refers to anything of value that was acquired or built during the marriage.
This includes your primary residence, investment properties, investments in businesses,
stocks and yes, retirement funds.
Arizona, like many other states, determines that in the case of a divorce, the community
income must be equally divided, unless there was another agreement previously made
or equity requires a different division. Yes, working with your spouse gives you several
advantages in building those assets including higher contributions and tax breaks. If the
marriage gave you any financial benefits, the courts agree that your spouse deserves
consideration for those benefits, even if they had minimal or no income.
Post Nuptial Agreements
Prenuptial agreements are the most well-known ways to protect your assets when you
get married. However, for many, retirement portfolios and property acquisition may grow
substantially after you are married. Unless you have something in writing, your situation
will not change the outcome.
Attorneys can work with you on making sure there is legal documentation specifically
stating what is yours after the marriage takes place. These documents are called post
nuptial agreements. This is the most recommended way to protect your assets and
ensure that what you have built since you were married also remains yours.
Retirement Benefits Up For Division
Without a post nuptial agreement in place, the courts will favor a 50/50 split of assets in
the case of a divorce. There are several types of investment and retirement funds that
will be included in this.
401K: This particular retirement fund is one of the more common types that is
disputed in a divorce because of how much the account can grow over a period
of ten years or longer.
IRAs: Roth and traditional IRAs may not grow as considerably as a 401K but can
have significant value over an extended period of time.
Pensions: This is where things can get a little tricky, especially if you are not yet
at a point where the pension has matured. Unfortunately, this is where your
former spouse and the courts can have more say over your pension options than
you do, as pensions are community property subject to substantially equal
division.
Company Stock: If you work for a company that gives you stock options as a
benefit for your employment you have to count that towards assets that will be
divided in divorce.
Business Ownership: Investment in a business or ownership if started during the
marriage is subject to equal division. This is one of the most highly contested
areas of divorce property allocation but is still usually divided 50/50.
It does not matter if your former partner contributed financially to these funds, had
income or anything else. Under Arizona law, they are community property and equitably
divided.
Prepare With Your Attorney
Pre and post nuptials may not be a popular conversation at the dinner table but they are
the best way to protect your assets and their growth during the marriage. If you are
concerned about your retirement efforts but still want the financial benefits that come
with being legally married, you need to have nuptial agreements in place to protect your
assets.