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What happens to retirement accounts in divorce?

On Behalf of | Jul 7, 2023 | Divorce

Since spouses contribute financially to their union in various ways, splitting property during divorce can become complex. Some assets may not be liquid, or they may be in accounts with specific restrictions.

One example of this situation is retirement accounts. In many cases, a couple may want to negotiate options for dividing funds in a way that suits them both.

Dividing property during divorce

Washington State is a community property state. As a result, most assets and debts a couple accrues during a marriage belong equally to each. The courts endeavor to apportion the net assets equally between the parties.

One option regarding retirement accounts would be for the couple to take a lump-sum payout and split the funds. However, most retirement accounts have early withdrawal penalties, reducing the amount of money each receives, so this is usually not the best option.

Leaving accounts as-is

If the parties each contributed comparable amounts to individual retirement plans, they may each keep their own retirement accounts.

Trading assets

Agreeing to trade property is common in divorce. One spouse may value an asset with more liquidity, while the other wants to preserve an investment. The parties can determine a fair exchange for items of similar value, including retirement accounts, real estate, bank accounts, etc.

Any agreements about property division should be in writing, and many retirement accounts require a specialized form and process to correctly address and effectuate the division.