Most married couples in Connecticut share their resources completely. They combine their checking accounts and jointly work to establish equity at their primary residence. They likely also plan to retire together. Their retirement budget likely reflects a plan of sharing their cost-of-living expenses. Spouses also typically share the responsibility of setting money aside. Some couples start combined retirement savings accounts, but it is also quite common for people to have separate retirement funds, often connected to their employment.
If couples who have saved for retirement together now intend to divorce, the change in their marital status will inevitably affect their finances. It is, therefore, understandable that someone might worry about the loss of their retirement savings during a Connecticut divorce.
Retirement savings are often subject to division
The Connecticut family courts expect couples to fairly or equitably divide their marital property. The courts will care less about whose name is on an account or ownership paperwork and more about when people made contributions to the savings account in question. Even if someone had begun funding their retirement account prior to marriage, the contributions to the account during the marriage are likely subject to division. There are ways for people to factor in the value of a retirement account without automatically trying to split it with their spouse. Other assets can potentially offset the value of the retirement account during a Connecticut divorce.
However, if people do need to divide their retirement accounts during the divorce, it is possible to do so without incurring massive taxes and penalties. One of the lawyers will draft a qualified domestic relations order (QDRO). After court approval and properly filing with the professional or business managing the retirement account, the QDRO will allow couples to move a certain percentage of the existing account’s balance into a second account without losing any of the value to taxes and penalties.
The early withdrawal penalty for many retirement tax accounts can be 10% of the amount withdrawn. Therefore, avoiding those taxes is often in the best interests of those worried about their financial stability after divorce and during their retirement years. In scenarios where someone’s retirement savings are of particular value to them, possibly because they are older than their spouse, they may be able to negotiate a settlement that allows them to retain their retirement savings mutual agreement with their spouse.
Ultimately, seeking legal guidance to better understand which assets are subject to division during a Connecticut divorce – and why – can help individual spouses to make thoughtful, strategic decisions about their circumstances.