Understanding Divorce and Retirement Accounts

By Rebecca Lake · June 05, 2023 · 7 minute read

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Understanding Divorce and Retirement Accounts

Getting divorced can cause both emotional and financial upheaval for everyone involved. One of the most important questions you and your soon-to-be former spouse may have to decide centers on how to divide retirement assets.

Understanding the key issues around divorce and retirement can make it easier to untangle them as you bring your marriage to a close.

Taking Note of Your Retirement Accounts

The average cost of divorce can range from several hundred to several thousand dollars, so it’s important to know what’s at stake financially. Managing retirement accounts in divorce starts with understanding what assets you have.

There are several possibilities for saving money toward retirement, and different rules apply when dividing each. Here’s a look at what types of retirement accounts you may hold and thus will need to consider in your divorce.


A 401(k) plan is a defined contribution plan that allows you to save money for retirement on a tax-advantaged basis. Your employer may also make matching contributions to the plan on your behalf. According to the Census Bureau, 34.6% of Americans have a 401(k) or a similar workplace plan, such as a 403(b) or Thrift Savings Plan.


Individual retirement accounts, or IRAs, also allow you to set aside money for retirement while enjoying some tax benefits. The difference is that these accounts are not offered by employers. There are several IRA options, including:

•   Traditional IRAs, which allow for tax-deductible contributions.

•   Roth IRAs, which allow for tax-free withdrawals in retirement.

•   SEP IRAs, which follow traditional IRA tax rules and are designed for self-employed individuals.

•   SIMPLE IRAs, which also follow traditional IRA tax rules and are designed for small business owners.

Each type of IRA has different rules regarding who can contribute, how much you can contribute annually, and the tax treatment of contributions and withdrawals.

💡 For more info, check out our guide on individual retirement accounts (IRAs).

Pension Plan

A pension plan is a type of defined benefit plan. The amount you can withdraw in retirement is determined largely by the number of years you worked for your employer and your highest earnings. That’s different from a 401(k), since the amount you can withdraw depends on how much you (and your employer) contribute during your working years.

How Are Retirement Accounts Split in a Divorce?

How retirement accounts are split in divorce can depend on several factors, including what type of accounts are up for division, how those assets are classified, and divorce laws regarding property division in your state. There are two key issues that must be determined first:

•   Whether the retirement accounts are marital property or separate property

•   Whether community property or equitable distribution rules apply

Legal Requirements for Dividing Assets

Marital property is property that’s owned by both spouses. An example of a tangible marital property asset is a home the two of you lived in together. Separate property is property that belongs to just one spouse.

In community property states, spouses have an equal share in assets accrued during the marriage. Equitable distribution states allow for an equitable — though not necessarily equal — split of assets in divorce.

You don’t have to follow state guidelines if you and your spouse can come to an agreement yourselves about how divorce assets should be divided. However, if you can’t agree, then you’ll be subject to the property division laws for your state.

If retirement assets are to be divided in divorce, there are certain steps that have to be taken to ensure the division is legal. With a workplace plan, you’ll need to obtain a Qualified Domestic Relations Order (QDRO). This is a court order that specifies how much each spouse should receive when dividing a 401(k) or similar workplace plan in divorce.

IRAs do not require a QDRO. You would, however, still need to put in writing who gets what when dividing IRAs in divorce. That information is typically included in the final divorce settlement agreement, which a judge must sign off on.

Protecting Your 401(k) in a Divorce

The simplest option for how to protect your 401(k) in a divorce may be to offer your spouse assets of equivalent value. For example, if you’ve saved $500,000 in your 401(k) and you jointly own a home that’s worth $250,000, you might agree to let them keep the home as part of the divorce settlement.

If they’re not open to the idea of a trade-off, you may have to split the assets through a QDRO. That could make a temporary dent in your savings, but you might be able to make it up over time if you continue to make new contributions.

You could skip the QDRO and withdraw money from your 401(k) to fulfill your obligations to your spouse under the terms of the divorce settlement. However, doing so could trigger a 10% early withdrawal penalty if you’re under age 59 ½, along with ordinary income tax on the distribution.

Protecting Your IRA in a Divorce

Traditional and Roth IRAs are subject to property division rules like other retirement accounts in divorce. Depending on where you live and what laws apply, you might have to split your IRA 50/50 with your spouse.

Again, you might be able to protect your IRA by asking them to accept other assets instead. Whether they’re willing to agree to that might depend on the nature of those assets, their value, and their own retirement savings.

If you’re splitting an IRA with a spouse, the good news is that you can avoid tax consequences if the transaction is processed as a transfer incident to divorce. Essentially, that would allow you to transfer money out of the IRA to your spouse, who would then be able to deposit it into their own IRA.

Divorce and Pensions

Pension plans are less common than 401(k) plans, but there are employers that continue to offer them. Generally, pension plan assets are treated as marital property for divorce purposes. That means your spouse would likely be entitled to receive some of your benefits even though the marriage has ended. State laws will determine how much your spouse is eligible to collect from your pension plan.

Protecting Your Pension in a Divorce

The best method for protecting a pension in divorce may be understanding how your pension works. The type of payout option you elect, for instance, can determine what benefits your spouse is eligible to receive from the plan. It’s also important to consider whether it makes sense to choose a lump-sum or annuity payment when withdrawing those assets.

If your spouse is receptive, you might suggest a swap of other assets for your pension benefits. When in doubt about how your pension works or how to protect pensions in a divorce, it may be best to talk to a divorce attorney or financial advisor.

Opening a New Retirement Account

Splitting retirement accounts in a divorce can be stressful. It’s important to know what your rights and obligations are going into the process. If you’re leaving a marriage with less money in retirement, it’s a good idea to know what options you have for getting back on track. That can include opening a new retirement account.

SoFi offers individual retirement accounts for people who want to invest with minimal hassle. You can open a traditional or Roth IRA online and choose between active or automated investing to fit your needs and goals.

Easily manage your retirement savings with a SoFi IRA.


How long do you have to be married to get part of your spouse’s retirement?

If you’re interested in getting spousal retirement benefits from Social Security, you have to be married for at least one continuous year prior to applying. The one-year rule does not apply if you are the parent of your spouse’s child. Divorced spouses must have been married at least 10 years to claim spousal benefits.

Is it better to divorce before or after retirement?

Neither situation is ideal, but divorcing before retirement may be easier if there are fewer assets to divide. Getting a divorce after retirement can raise questions over how to divide retirement and non-retirement assets. It may also lead to financial insecurity on the part of one or both spouses if the distribution of assets is unequal.

Who pays taxes on a 401(k) in a divorce?

If you’re dividing up your 401(k) prior to divorcing then you would be responsible for paying any taxes or penalties owed. Waiting until after the divorce is finalized to split your 401(k) with your former spouse could reduce the amount of taxes and penalties you owe.

Photo credit: iStock/FG Trade Latin

This article is not intended to be legal advice. Please consult an attorney for advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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