When couples divorce in Arizona, retirement accounts they contributed to during the marriage are typically equally divided. Divorcing spouses often lament about the impending loss of personal property, having to sell a home, and having to pay spousal maintenance. People often forget that any funds contributed to his or her 401(k) will likely be split equally with the other party.
401(k)s, IRAs, pensions, 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 healthy retirement nest egg for the owner. Some portfolios can reach well over $1 million by the time they mature. If you’re married and get divorced, you will likely be giving your partner 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 accounts.
Arizona, like many other states, determines that in the case of a divorce, the community income must be divided evenly unless there was another agreement previously made, or equity requires unequal division. Even if your spouse did not work or earn an income during the marriage, he or she will still be entitled to a half share from the date of marriage through date of filing for dissolution or separation.
Pre Nuptial Agreements
Prenuptial agreements are the best way to protect your assets before getting married. For many, retirement accounts and 401(k)s grow substantially once you are married. If you want to protect the asset you grew prior to the marriage, a prenuptial agreement is necessary. Unless you have a binding, enforceable premarital agreement, any growth earned after your date of marriage is subject to community division.
Attorneys can work with you on making sure there is a binding and enforceable premarital agreement before you tie the knot. This is the best way to protect your assets and ensure that what you have built prior to marriage remains yours.
Post Nuptial Agreements
Post Nuptial Agreements are written agreements between spouses after the marriage has taken place. The postnuptial agreement can occur anytime after the marriage, whether a week, six months or ten years into the marriage. If a couple decides after getting married that they prefer to divide certain assets; or convert certain assets from community to sole and separate, they can enter into a post nuptial agreement. There must be full financial disclosure from both sides, including showing the other party all of your assets and debts.
Retirement Benefits Up For Division
Without a pre or post nuptial agreement in place, the courts will favor a 50/50 split of all retirement assets in the case of a divorce. That’s why discussing this topic with a knowledgeable family law attorney is crucial.
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 and beyond. If you are concerned about your retirement efforts but still want the financial benefits that come with being legally married, you need to have a pre or nuptial agreement in place to protect your assets from conversion to community property.