You worked hard for years to ensure that you and your spouse would have enough money to get you through your retirement. Things may suddenly change if you and your spouse decide to get a divorce.
The costs of divorce, especially if contested, combined with your regular life expenses, may make you want to dip into your retirement savings. However, doing so may end up costing you even more money.
What will it cost me?
For instance, taking money out of your accounts prematurely may require you to pay extra taxes for 401(k) withdrawals if you are under the age of 55 and for IRA withdrawals if you are under 59.5 years old.
Fortunately, there are other ways to ensure you remain financially stable during, and after, your divorce. After you collect summary plan descriptions (SPDs) for any retirement accounts and other financial assets from your employer, you will need to value these accounts and try to agree with your spouse on how to divide them. If you cannot come to an agreement, seek advice from your attorney.
Consult a tax professional
Once your assets have been divided and detailed in your divorce order, you should consult a tax professional regarding the best way to separate accounts. For example, IRAs can be transferred and split within one year of the divorce without taxation.
As you start your new life as a single person, you may have to open your own checking and savings account, if you do not already have separate accounts. You will also need to focus on budgeting for just yourself.
Source: The Motley Fool, "How to Protect Your Retirement Savings During Divorce," Sarah Szczypinski, Sept. 2, 2017