Divorcing when you have property often means needing to invest a lot of time in litigation or negotiating a settlement. You and your ex may have shared accounts and property, which will mean it takes longer to create an accurate inventory of your marital estate and to divide those belongings.
Few marital assets make as much of an impact on your future financial stability as your retirement account. You and your spouse have probably spent the entirety of your marriage setting income aside for your golden years.
If you have a 401k or a similar qualified retirement savings account, it may be the primary means of supporting yourself when you eventually retire. Unfortunately, divorcing in Colorado often means that you have to split your retirement savings with your ex. Either of the two strategies below can minimize the retirement losses that you suffer.
Negotiate with your spouse so that you can keep retirement savings
If you had the foresight to draft a prenuptial agreement before you got married, you may have already allocated your retirement savings as your own separate property. You could have protected yourself in a similar fashion using a postnuptial agreement during a time of marital hardship.
If you don’t have a marital agreement, you could still talk to your spouse and arrange your settlement outside of court. Your spouse may be willing to let you keep the retirement savings in exchange for other assets or specific terms.
Use a QDRO to divide your retirement accounts
If there is no getting around the obligation to split the retirement account itself, you don’t want to have to take any more of a loss than is necessary on those savings. The IRS often assesses a 10% tax penalty on early withdrawals.
Thankfully, you can avoid that penalty by having one of your lawyers draft a Qualified Domestic Relations Order (QDRO) and then turning that into the person who manages the retirement account. You can divide the savings into two accounts without any early withdrawal penalty.
Careful strategy and planning are often necessary to adequately protect yourself while dividing your property in a divorce.