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Divorce at any age is challenging. However, if you are divorcing later in life, you face unique challenges. Whether you've been married for decades or only a short while, protecting your retirement is a key concern. After years of contributing to your retirement accounts, it is imperative that you take measures to protect and preserve your 401k, IRA, or other retirement plans. While some pensions and retirement accounts must be divided during the divorce process, there are steps you can take to limit the financial hardship this division may cause.
Below we review how Virginia property division laws affect pensions and retirement benefits and discuss potential methods for protecting your retirement during the property division process.
Virginia Property Division Laws
When going through a divorce in Virginia, all marital property must be divided equitably between the divorcing parties. This does not necessarily mean a 50/50 split and instead is focused on dividing property in a way that is fair to both parties. The first step in this process is identifying what property is separate, marital, and mixed.
According to the Code of Virginia § 20-107.3, separate property is defined as all real and personal property acquired before the marriage, property that was acquired during the marriage by means of inheritance or gift from a source other than the party's spouse, and property that was acquired during the marriage through exchange for or from the proceeds of the sale of separate property (provided that the individual property has been maintained as such throughout the marriage).
Marital property is defined as property titled in the names of both parties (jointly owned) and property acquired during the marriage.
Mixed property is property that is comprised of a combination of both separate and marital property. For example, if one spouse contributes to an account that was previously separate property, those contributions and earnings made from those contributions may be classified as marital property, while the rest remains separate. Similarly, if separate property is used to benefit the marriage, the courts may classify that property as marital property. Mixed property can be very complicated, and you must keep very detailed financial records and work with an experienced lawyer during the property division process.
Retirement Accounts & Pensions: A Complicated Property Situation
If you own a retirement account, have a pension, or some other sort of retirement plan, there is a good chance this was established before your marriage. Many people's retirement accounts are tied to their employer (such as 401k plans). Consequently, it is not uncommon for people to come into a marriage with retirement savings and pensions already established. However, this does not necessarily mean that those accounts will always remain separate property.
It is not uncommon for retirement plans to be classified as mixed property, with a part being designated as separate and a part being designated as marital. When this happens, the courts have the right to award a portion of the marital share to the other spouse (not to exceed 50% according to the law). When a retirement account, pension, or other benefit is divided, there are often significant financial consequences, including early withdrawal fines and tax implications. This makes dividing retirement accounts difficult during the divorce process.
How to Protect Your Retirement Plan During a Divorce
Because Virginia is an equitable distribution state, you may have the option to negotiate a property division settlement that keeps your retirement account intact. For example, the party who wants to maintain the retirement account may agree to cede additional property to the other party of equal value (such as real estate). Conversely, the person who retains the retirement account may also agree to take on more marital debt to balance out the additional assets the retirement account represents.
If you are going through a divorce, your first step should be to hire an experienced lawyer to represent you during divorce proceedings. Your attorney can use their knowledge to help you throughout the process, including helping you through the difficult property division process. This is especially important if you are concerned about what will happen to your retirement account. Your lawyer will help you explore all of your options and help you uncover the solutions you need to preserve your retirement.
At Malinowski Hubbard, PLLC, we have a long history of helping clients protect their financial interests, and we are well-versed in the challenges faced by those going through a divorce later in life. To get help with your case, reach out to our law firm and schedule a consultation.