Certain personal resources have more impact on an individual’s future financial stability than others. Someone’s home and their vehicle are both potential sources of personal stability and may have a significant impact on someone’s overall personal wealth. Retirement savings can also be very valuable and can directly influence someone’s standard of living when they eventually retire.
Those preparing for divorce in Virginia often focus on their high-value assets when developing a strategy for how to approach the process. Retirement accounts may be among the assets that are more likely to cause conflict and confusion during a divorce.
Accounts are usually not separate property
The mistake that many people make when considering their retirement savings for the purpose of divorce is that they view the account as the property of the spouse who started and funded the account. Given that only one person made direct contributions to the retirement account or that it relates to someone’s employment, they might think they will keep the entire account and will not need to share it with their spouse when they divorce.
However, the courts will usually view retirement savings and even pensions as part of the marital estate. The money people contributed to the account during the marriage would be marital income and would therefore be subject to division under Virginia’s equitable distribution statute. At least a portion of the balance will be subject to division or will influence how the courts divide other assets.
Account division doesn’t have to cause penalties
The good news for those worried about dividing their retirement savings and thereby diminishing what they have set aside for the future is that they don’t have to worry about losing a significant amount to taxes and penalties because of an early withdrawal. If someone were to pull money from their retirement savings account and use those funds during the divorce, there would be penalties and taxes that would apply and significantly diminish the value of the account.
Those splitting a retirement account as part of a divorce in Virginia can have a lawyer draft a qualified domestic relations order (QDRO). The proper submission of a QDRO to the person or business managing the account can lead to the penalty-free division of the account into two separate accounts, one in the name of each spouse.
Although people will likely need to share some of their retirement savings or factor in their value when dividing other assets, they won’t generally have to worry about losing even more of their retirement resources to the penalties and fees associated with a pre-retirement withdrawal as long as they take certain steps. Understanding the rules that apply to someone’s most valuable assets can help them better prepare for divorce proceedings in Virginia, so seeking legal guidance proactively is generally a good idea.