Divorce is a challenging and emotional process, and one of the most significant concerns that often arises during this time is the division of assets, including your retirement funds.
Protecting your retirement assets in a divorce helps ensure your financial well-being in the long run.
Understand your assets
The U.S. Census found that both marriages and divorces have declined since 2011, and the divorce rate was 6.9 per 1,000 women in 2021. However, if you are one of the couples that face divorce, your first step should be understanding your assets. Gather the account balances and contributions you and your spouse made to both of your accounts during your marriage because they may offset each other.
Negotiate equitably
Illinois is an equitable distribution state. Therefore, negotiate based on the length of your marriage, your financial needs and retirement contributions. Then, search for an equitable agreement.
Explore settlement options
Mediation or collaborative divorce processes can help you reach mutually beneficial asset division. These options can be less adversarial and more cost-effective than lengthy court battles. Strive to create agreements that align with your retirement goals.
Consider a QDRO
A Qualified Domestic Relations Order is a legal document that allows the division of retirement accounts between spouses without incurring penalties or taxes, safeguarding your retirement assets during a divorce.
Post-divorce strategies
Update your beneficiary designations on retirement accounts to reflect your post-divorce wishes, so your ex-spouse does not receive your assets upon your passing.
Start saving for retirement immediately, and maximize contributions to your retirement accounts. Also, reassess your investment portfolio to ensure it aligns with your new financial situation and retirement goals. Diversification can help protect your assets from market fluctuations.
Take your time and try to work with your spouse to create a solution that protects your retirement assets.