Many people in Virginia understand that it is important to plan financially for their future, so they contribute a certain percentage of each paycheck to a retirement account. Some people are even lucky enough to have pensions, and many also count on receiving Social Security benefits to help fund their retirement. However, what happens to one’s retirement assets in the event of a divorce? With so much money at stake, especially in a high-asset divorce, it is important that both parties to a divorce walk away with a fair portion of their retirement funds.
Dividing retirement funds isn’t the same as dividing a bank account or other financial resources. Proper paperwork must be filed to avoid incurring taxes and fees. For example, pensions, 401(k)s and other qualified plans must be divided through a Qualified Domestic Relations Order. Doing so permits a person to roll his or her funds into his or her own qualified plan within one year of the date the divorce is finalized without having to pay any taxes on the transfer or incur any penalties.
In addition, if the couple’s marriage lasted at least one decade or more, a spouse can claim Social Security benefits on his or her ex’s record. This is even true if a person’s ex remarries or passes away and even if the person’s ex leaves behind a spouse upon their death. In addition, once two years have passed since the date the divorce was finalized, a person can begin collecting benefits based on his or her own record even if his or her ex has not yet retired. However, this benefit is only available to those age 62 and older who have not remarried.
As this shows, dividing retirement assets can be legally complex, and there are legal requirements for collecting Social Security benefits based on your ex-spouse’s record. However, a fair division of retirement accounts is essential to the financial future of both divorcing spouses, especially when one or both spouses amassed a sizeable amount of retirement savings. Thus, those going through a high-asset divorce will want to ensure that they understand what they are agreeing to in the property division process before proceeding.