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Division of retirement assets in a divorce

| Oct 2, 2020 | Divorce |

Through the divorce process, a couple will likely struggle with both emotional and financial turmoil. A significant portion of the financial challenges can be attributed to the division of marital assets. While dividing the house, cars or family business might be difficult, the division of retirement assets can prove complex.

Retirement accounts are assets that not everyone will address in a prenuptial agreement, but the longer a couple stays married the greater likelihood that they will work together to grow this asset. In fact, after decades of marriage, a retirement savings will likely be one of the largest and most valuable assets many couples own. Unfortunately, there might be tax implications, early withdrawal consequences or other complications that make the division of a retirement account much more complex than dividing other assets.

Can you protect the asset?

Many couple will explore the benefits of drafting a Qualified Domestic Relations Order (QDRO). This is a legal document that can be used to instruct the retirement or pension plan about how to pay out the shares of the fund. However, it is important to note that a QDRO will only apply to IRS tax-qualified plans and military and government pensions are governed by a different set of laws.

Even with these restrictions, couples will often rely on a QDRO to lay out strict, detailed instructions as to when a disbursement should occur and where the withdrawal should be deposited.

Since Wisconsin is considered a community property state, funds added to the retirement account during the marriage are likely to be considered marital property. Even though the argument could be made in certain situations that one spouse contributed significantly more to the fund than the other, during a divorce, the court will choose to divide the asset.