During a divorce, emotions can run high. Retirement may not be at the top of your list of things to think about, but it’s an important aspect of your future. By not giving enough attention to the subject of retirement in the divorce process, you could be doing yourself and your future financial security a major disservice.
With the goal of coming away from a divorce with your fair share of retirement savings, here are some best practices to consider:
Work with a team. Dividing retirement assets in a divorce can be complex. Having a financial advisor, who is knowledgeable about retirement plans, work alongside your divorce attorney to carefully analyze the assets and determine a fair division, will help you plan for your future. If your team has experience dealing with complicated divorce situations, they will better be able to help guide you through what otherwise would be an overwhelming endeavor.
Review your retirement assets. Retirement plan assets, which include 401(k) plans, individual retirement accounts (IRAs) and defined benefit plans sponsored by an employer, are usually regarded as marital property — meaning there is an expectation they, too, will be divided between the divorcing spouses. How they are divided often involves federal and state law, among other factors. Your team of advisors can help you understand not only what assets are held in your or your spouse’s retirement plans, but also how those benefits are paid. For example, you or your spouse may not receive pension plan payments until years after your divorce is finalized.
Transfer assets wisely. Since complex tax laws and strict distribution requirements surround retirement plans, it is best to seek help from your team of advisors to plan and complete any retirement-related paperwork and transfers during divorce proceedings. Examples include moving assets from one spouse’s retirement plan or IRA into the other’s account and providing a qualified domestic relations order to a plan administrator, as approved by a judge and customized according to the retirement plan.
Stay educated. Whatever your life situation, being aware of your finances is critical to your overall well-being. Unforeseen life events, such as divorce or the passing of a spouse, could leave you with a steep learning curve to get on track. In general, the more you know about and understand your options, the better able you are to make sound financial decisions. Your financial advisor can likely suggest ways to help you expand your financial knowledge, and there are a number of tools available online.
As you plan for your next stage of life, taking steps to secure your financial future with a fair distribution of retirement assets could make a big difference in your quality of life post-divorce.
Kristen Fricks-Roman CFP®, CRPS®, is a financial advisor and senior vice president at Morgan Stanley Wealth Management, Atlanta. She can be reached at [email protected].
The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney LLC and its Financial Advisors do not provide tax or legal advice. Individuals should seek advice based on their particular circumstances from an independent tax advisor. Morgan Stanley Smith Barney, LLC, member SIPC.
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