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How Will Divorce Affect Your Retirement?

| Dec 17, 2020 | Divorce |

You’ve spent most of your adult life diligently saving for retirement. Now your marriage is ending and you may be wondering if your spouse is entitled to half of your retirement accounts along with half of your other assets.

This can be a complicated question to answer, but it starts with understanding the difference between community and separate property.

What Is Separate Property?

Separate property is classified as any property acquired prior to marriage. This property is not eligible to be divided during divorce and is kept by the original owner, regardless of the divorce settlement. For example, if you purchased a car before getting married, the car belongs to you and cannot be involved in the property division process. However, if you and your spouse purchased a home together, the house will be considered community property and is subject to division.

What Is Community Property?

Wisconsin is one of a few states that operates under community property laws during divorce. That means, all property that cannot be classified as separate property is divided equally, or 50/50 rather than equitably. Community property is split down the middle.

What Does This Mean For Retirement Accounts?

For most people, their retirement accounts like pensions and 401k fall under community property. If you put money into one or more of these accounts during your marriage it is considered community property and therefore can be divided equally during divorce, just like any other community property. However, if part of your 401k or pension was earned prior to marriage, this part can still be considered separate property.

This may put a twist in your retirement plans. Though you’ve carefully put money aside each year, a divorce may divide that amount in half. It’s important to have a thorough understanding of this process so you can ensure you are getting a fair deal and your retirement can stay on track.

Dividing retirement accounts can be one of the more complicated parts of divorce, due to tax implications, the stock market and other regulations regarding accessing the funds in a 401k or pension. Navigating this aspect of divorce is an involved process, which can benefit from a professional’s help.