Retirement is the long-term goal for many individuals after they have dedicated much of their lives to their work for decades. However, marriages can dissolve at any point, including near or after retirement, and the financial impact that this has on long-term fiscal wellness is only magnified when one or both partners leave the workforce.
Divorce does not have to mean that retirement plans are put on hold or destroyed entirely; instead, a strategic approach to divorce and retirement benefits can lead to success in spite of this roadblock.
Here is what anyone going through a divorce should know about handling retirement funds, including their partner’s power to impact their retirement and what they can do to mitigate the losses.
Can a Spouse Claim Your Retirement Savings?
In Maryland, marital property is divided equitably. This means that one partner can, and often does, receive more than the other during a divorce depending on their anticipated quality of single life, their income, any disabilities, and a number of other factors.
When the determination of property division is made, all marital assets are included in the calculation as a potential source of compensation. Marital property is defined as assets that were acquired after the two people were married.
These are assets that they own jointly, and may, therefore, be split between the two parties. Any contributions made to retirement, whether to brokerage funds, savings accounts, or retirement vehicles such as 401(k)s and Roth IRAs, qualify for liquidation to the other party as long as those contributions were made following the legal ratification of the marriage license. Pensions are included as well in most cases.
Because all of these types of retirement funds can qualify as marital property, it is possible that a divorce settlement can force a partner to liquidate some or all of their retirement assets in order to fairly compensate the other party.
Does Alimony Stop in Retirement?
Retirement holds no special status in the context of divorce; assets can be claimed before, at the point of, or after retirement, and the same is true of alimony. If alimony is awarded to one partner, they must continue to pay it for the term stipulated in the divorce ruling, regardless of whether they are retired or become retired.
In many cases, the loss of some portion of their income each month forces the party paying alimony to move back out of retirement, at least to a part-time job, in order to afford the payments without drawing down their retirement balance faster than anticipated.
However, it is possible for alimony to stop in retirement, though certain conditions must be met first. If the partner receiving the payments remarries, they are no longer eligible to receive continued alimony payments.
If the payer passes away, their family is no longer responsible for their alimony payments, and the rest of their retirement income cannot be garnished to continue paying the recipient party.
However, contrary to popular belief, becoming disabled does not eliminate the need for alimony payments, and a payee partner can claim a portion of disability payments in order to continue receiving the prescribed alimony. Outside of these circumstances, alimony will continue for the duration ordered by the court, which could be as short as a few months and as long as the rest of the payer’s life.
Reducing the Impact of Divorce on Retirement
While there is no way to completely shield all of one’s assets from distribution in a divorce, it is possible to decrease the financial consequences of a separation. One of the most important steps is acquiring a QDRO, or qualified domestic relations order.
This documentation proves that the assets are being reassigned under the context of divorce, which can prevent many of the fees associated with withdrawing money from accounts such as 401(k)s. Additionally, it is the responsibility of each party to prove which assets of theirs are marital property and which are non-marital property.
In Maryland, non-marital property is considered any assets that were purchased or invested before the marriage, and these cannot be clawed back during a divorce. Establishing a strong evidence trail of non-marital property reduces the overall amount that can be claimed from the other party during a divorce, including retirement benefits.
Seek Legal Assistance from Divorce Attorneys for Retirement Strategy
When partners separate, one of the many considerations that come to the forefront is divorce and retirement benefits. The attorneys at SIEGELLAW help divorcing partners achieve the best outcome for their case, helping them to avoid financial difficulties and continue on to an enjoyable retirement after divorce. Contact us to schedule a consultation to discuss your options.