Retirement accounts can be worth more than houses, so the decisions you make about them could largely determine your financial future. When facing divorce, you will need to know what kind of retirement accounts you and your spouse have and the rules associated with each type of account.
The account rules are explained in the “Summary Plan Description”. This document describes the rights, benefits, and responsibilities under the plan. Be sure you request a copy of the summary plan description for your plan and your spouse’s plan. Your financial advisor will need this document.
Broadly speaking, there are two kinds of retirement savings plans.
The first is a “Defined Benefit” plan – what we would call a “pension”. The amount of money that a person will receive from the plan is “defined” by the rules of the plan. If you work at a company for X number of years, and you are Y number of years old, then you get Z percentage of your pay when you retire.
The second kind of retirement savings plan, which most of us are more familiar with, is a “defined contribution” plan. These plans define how much you can save into it each year, and then you can invest the money yourself, inside the plan. These have a variety of names such as 401(k), 401a, 403(b), there’s even a 457 plan.
The rules of how these kinds of plans can be divided – or even whether they can be divided – when a couple gets divorced are too complex to explain in this short video. However, it’s fair to say that there are a variety of ways to divide retirement savings depending on the plan.
The third type of retirement plan to consider is Social Security. Although it CANNOT be split up, as long as your marriage lasted 10 years or more, you can receive benefits based upon your ex-spouse’s record. How Social Security works for divorced spouses is complicated, so speak with a knowledgeable financial advisor who is a Certified Divorce Financial Analyst to ensure you receive information on the benefits to which you’re entitled.
Dividing retirement accounts during divorce can be difficult and complex. The advisors at Feldmeyer Financial Group integrate the methodologies of financial planning into the divorce process, showing you what your cash flow could look like in retirement based on the decisions you make today. If you want financial information and data to help you make those decisions, schedule an appointment with us.
Ben Feldmeyer, CFP®, CDFA®, CLTC® is a Private Wealth Advisor and President of Feldmeyer Financial Group, a private wealth advisory practice of Ameriprise Financial Services, Inc. For more information, please visit the Feldmeyer Financial Group Divorce Magazine online profile.
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