There are several issues people may need to address as they prepare to handle financial negotiations related to divorce. Creating an inventory of marital assets and debts is often one of the first steps. Spouses have to disclose everything they own jointly and also their separate property.
Sometimes, spouses may end up disagreeing about what assets are subject to division and which ones are separate property. Typically, anything accumulated or earned during the marriage is part of the marital estate unless the spouses have a written agreement saying otherwise. There are exceptions for inheritances and gifts as long as spouses keep those assets separate from the marital estate.
Retirement accounts are often among the most valuable resources people own. Can the spouse who has funded a retirement account claim it as their separate property when they divorce?
The timing of deposits determines what is vulnerable
Some people believe that the resources they hold solely in their own names are their separate property when they divorce. Unless they have a prenuptial agreement affirming that belief, they may be in for a shock when reviewing state statutes.
Separate financial accounts are typically not safe from property division. That is as true of checking accounts and credit cards as it is of retirement accounts. Any contributions made during the marriage are likely subject to division.
Even if only one spouse ever made deposits into the account, both have an interest in it as part of the marital estate. The account holder may need to go over the history of deposits to determine if there were separate contributions made before the marriage and after the couple separated.
In some cases, they may be able to protect a portion of the account as their separate property. Spouses also have the option of reaching a settlement in which they retain the retirement account because they agreed to let their spouses keep other property worth a comparable amount. If dividing the account is necessary, there are ways to split even tax-deferred accounts that can prevent tax consequences and financial penalties.
Those who have realistic property division expectations can focus on achieving the best terms instead of fighting unnecessarily over terms they are unlikely to secure during litigation. Knowing which assets are vulnerable can be important for those beginning to strategize for an upcoming divorce.
