During our last post we addressed how going through a divorce and property division during a turbulent economy is much tougher than going through the same process in a healthy one. Houses seem to no longer be as safe of a bet as they once were and many divorcing couples may be looking at their home as a liability in the current economic climate. Last time we spoke about how to financially prepare for divorce and this time we will talk about timing and retirement accounts.
In a healthy economy, it is a lot easier to predict what a retirement account will look like after property division, but the process is harder with drastic swings on Wall Street. Normally, retirement accounts like pensions or 401(k) accounts are titled in one person's name and if a divorcing couple decides to divide a retirement account they will have to get a "qualified domestic relations order" from the court. A qualified domestic relations order can take a few months to be approved and account balances can change during that time period.
To guard against drastic balance changes, a divorce agreement can dictate whether the amount going to the spouse whose name is not on the account is fixed. A "division date" in the divorce agreement normally sets the fixed date. The division date can be the date when the divorce is finalized. A divorcing couple can also choose to allow the retirement account amount to rise and fall until assets are actually separated. Each has its pro's and con's therefore it is important to retain legal assistance.
Next time we will continue this discussion and talk about how divorcing couples can share the risk of a fickle economy.
Source: The Wall Street Journal, "Divorce: Who wants the house?" Kelly Greene, October 1, 2011