Most people understand that divorce has implications for each spouse’s finances. After all, the process is somewhat expensive on its own. Additionally, marital assets need to be divided and one spouse may even be subject to support orders that force them to make regular payments for years after the end of the marriage.
In Rhode Island, much of what people accumulate during their marriages will be subject to division in the event of a divorce. Even assets that people hold only in their own name, like retirement accounts, could end up split with their spouse at the end of a marriage. Many people worry about what dividing their resources will mean for their financial stability during retirement, especially if they are close to retirement age.
People don’t always divide their accounts
How big of an impact divorce has on retirement savings will depend on several factors. One of the most important is whether they divide the account or simply consider its value. Another factor is how much of the account’s balance is actually marital property.
For example, some couples will only have to split a portion of a retirement savings account. Contributions that someone makes before they get married would not be part of the marital estate. Additionally, some people are able to negotiate settlements in which they preserve their retirement accounts completely by allowing their spouse to keep other valuable resources, such as their retirement accounts or a high-value vehicle.
If people do need to divide the account, they can follow a process that will save them from penalties and taxes. Accounts such as 401(k)s or Roth IRAs are subject to both taxes and penalties that may add up to 10% of the amount withdrawn before retirement age. To avoid such penalties and the taxes associated with an early withdrawal, account holders need to have their lawyers draft a Qualified Domestic Relations Order (QDRO).
Those who follow the right process for drafting and recording a QDRO can preserve the maximum amount of their retirement savings in Rhode Island divorce. Others may choose to compromise on other financial matters to keep the balance of an account outright. Seeking legal guidance as to the best approach that may serve an individual’s unique circumstances tends to be the wisest way to get started regardless of which approach ends up prevailing in the end.