Divorces and Retirement Assets

As the Great Recession rolls creating a wake of destruction, one of the worst outcomes is divorce. When money gets tight a natural derivative of that is an increase in stress, and stress can be harmful to relationships. If you or someone you know is filing for divorce, make sure they ask their attorney about Qualified Domestic Relations Orders. These affect retirement assets (his or her 401k's, IRA's, and other tax-deferred assets). Negotiating assets is one thing, it is an entirely different thing to pay them out according to the outcome of the negotiation. One of the worst things that can happen is giving up more than you budgeted for. Let's see a couple of examples that may affect both spouses.

Example 1: A divorce is finalized and the husband's 401k will be split in half. They both know that at the time the agreement was made, the total value of the account was $100,000, so they agree that she would get $50,000. Now, this agreement happened to have taken place in the summer of 2008; we all know what happened in the 4th quarter that year and the husband is now an owner of $65,000 401k. He still believes the wife is only getting half of that, but the trouble is that they agreed to a hard number: $50,000. He is shocked to find out that after he pays her, he is only left with $15,000 in his account.

Example 2: Once the divorce has been finalized and the wife accepts to get a negotiated portion of the husband's pension, she thinks everything is squared away. While she thinks she is getting half the pension guaranteed amount, in reality there is no asset. Her attorney failed to negotiate the spousal continuation benefit upon her husbands death.

These are devastating and common outcomes due to deep recessions. Make sure a knowledgeable attorney is involved in splitting up esoteric assets, whether retirement or otherwise.