To successfully divorce, spouses have to separate their lives. Property division is one of the most important aspects of that process. People have to split up their resources and their financial obligations with one another.
The marital estate is subject to division either through litigation or through mutual agreement between the spouses. People preparing for divorce may be able to protect some of their assets from division by showing that they are separate property.
Resources owned prior to marriage are often considered separate property. People can also protect assets acquired as gifts or as part of an inheritance. Some people might hope to protect retirement savings as separate property when they divorce. After all, they may have been the only one who ever made contributions to the account. Are retirement savings held in the name of one spouse considered separate property when they divorce?
Account ownership doesn’t make the asset separate
Contrary to what many people assume, the name on ownership paperwork does not automatically make an asset the separate property of the spouse whose name is on those documents. Separate financial accounts and debts are typically part of the marital estate when couples divorce.
What matters the most is when they made deposits into the retirement account or when they took on those debts rather than who has their name on the paperwork for the account. A 401(k) or pension in the name of one spouse is theoretically part of the marital estate and is likely subject to division when the spouses divorce.
Savings set aside before the marriage may remain separate property. If the spouses signed a prenuptial agreement declaring the account separate property, then it may not be divisible.
Otherwise, the spouse who owns the account or has accumulated pension benefits has to disclose those resources and may need to factor them into the divorce process. Depending on how spouses decide to handle retirement resources, they may be able to divide them without necessarily risking tax consequences and the standard penalty imposed for early withdrawals.
People preparing for divorce often need help understanding the rules that apply during the property division process and the strategies they may need to employ. Those hoping to protect their retirement savings may need to adjust their negotiation or litigation tactics to increase their chances of achieving that goal.
