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What happens to retirement accounts in an Alabama divorce?

On Behalf of | Aug 16, 2023 | Family Law

Divorcing couples in Alabama may wonder whether they can remain in their marital home or worry about how they will divide credit card debt. Worry tends to be an inevitability during divorce, as each party has so much at stake.

Both spouses want to preserve as much of their assets as they can for their future financial stability, and the most valuable resources can lead to major conflicts as they negotiate property division matters. For example, retirement savings allow couples to plan for their financial needs when they no longer work. What happens to retirement savings when people file for an Alabama divorce?

Retirement accounts are often subject to division

Planning for retirement often involves making financial sacrifices in the short term for one’s future stability and comfort. Often, retirement savings accounts have a connection to someone’s employment and may even be a way for them to receive benefits and additional compensation from their employer in the form of matching contributions.

Even when the retirement account relates to someone’s job and is only in their name, they may have to share some of its value with their spouse. In fact, even if someone started saving for retirement before they got married, at least the contributions that they added during the marriage are likely divisible in the divorce proceedings. Accrued interest and employer contributions are usually also subject to division.

Spouses can either negotiate their own terms for handling retirement savings in their property division settlements, or they can ask a judge to review an inventory of their marital assets and then apply the Alabama equitable distribution statute to their resources. If they have to divide the account instead of simply factoring its value into other decisions, spouses can have a lawyer draft a qualified domestic relations order (QDRO) which will allow them to transfer a specific percentage of the original account into a new account held by the other spouse without any taxes or penalties.

Many times, people can negotiate a way to divide their retirement savings without splitting the actual account and judges can also reach property division solutions that integrate the value of retirement savings without requiring the spouses to split the accounts value.

In general, people can anticipate that whatever they’ve added to their retirement accounts during a marriage will influence their property division process unless they have a pre-existing marital agreement with their spouse that specifically designates retirement resources as separate property. Knowing what will happen to a couple’s biggest shared assets may help people feel more confident about pursuing divorce in Alabama. After all, knowledge is power.