How Are Retirement Assets Split During Divorce?
When a couple divorces, the debts and assets must be divided between them. Couples often come to their own agreements on these matters, but if they don't, the courts will divide their estate according to state law.
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Divorce
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Divorce is the legal dissolution of a marriage. When a couple divorces, a settlement will be negotiated in which all of the property, including retirement assets, will be divided between both parties.
Retirement Assets
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Retirement assets are financial products that are intended to provide for individuals after they retire. Common retirement assets are pensions, Individual Retirement Accounts (IRAs), and 401k plans.
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Equitable Distribution
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In a state that divides marital property according to the principle of equitable distribution, retirement assets will be divided according to the contributions of each spouse to the marital estate, as well as each spouse's needs. Depending on state law, retirement assets earned before the marriage may belong entirely to the spouse who earned them.
Community Property
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Some states base their property division decisions on the idea of community property: All assets and debts acquired during the marriage are divided equally between the spouses. While retirement assets earned before the marriage will typically be awarded to the spouse who earned them, retirement assets earned or acquired after the marriage are considered community property.
Dissipation
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Dissipation is the act of one spouse squandering assets that rightfully belonged to both spouses (including retirement assets). If a spouse can prove that dissipation of assets has taken place, this can be factored into the financial settlement.
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References
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