Divorce is a painful process. If that is looming or you are contemplating, it is important to get organized with all assets. However, the retirement accounts and claims on Social Security and Divorce are often the largest and trickiest to resolve.\r\n\r\nA survey completed in 2017 found that 70% of married adults over that age of 37 do not have a financial plan in place to divide assets in a divorce. \r\n\r\nThat may be romantic (sort of), but it\u2019s naive. 43% of all marriages end in divorce, and the rate of divorce for couples that are over 50 is at an all-time high. \r\n\r\nCurrently the average marriage lasts 8.2 years.\r\nPrepare and Stock Cash\r\nMoney On Table\r\n\r\nAccording to Kathleen Miller, CFP, it is very important to collect all financial information and start to plan a pre and post-divorce budget. \r\n\r\nWhen dividing assets don\u2019t just contemplate total value but also consider the income that each asset produces. \r\n\r\nAs Joe Dillon, MBA and Divorce Mediator, notes it is very important to account for your monthly cash flow needs. \r\n\r\nYou do not want to end the settlement process asset rich and cash flow poor. \r\n\r\nThat may require the couple to liquidate some assets so that there is a cash reserve to help launch your new independent lives. \r\nRetirement Divorce Settlement\r\n\r\nDivorce settlements are typically governed by state law and states generally fall into one of two categories\u2013Equitable Distribution or Community Property. \r\n\r\nEquitable distribution is the more common of the two and generally follows that the property acquired during the marriage belongs to the person that earned it. \r\n\r\nAt time of divorce that property would be divided in a \u201cfair and equitable\u201d manner. It\u2019s very much a case by case, and all facts are considered in making the allocation decision.\r\n\r\nIn Community property states all assets are assumed to be owned equally by both parties. This generally results in a direct 50/50 split between parties.\r\nCan My Spouse Get Half of My IRA in a Divorce?\r\nWord IRA On Card | Social Security and Divorce\r\n\r\nThey answer is \u201cYes.\u201d \r\n\r\nTypically all assets will be accounted for before making an allocation decision. \r\n\r\nFor example, if the higher-earning spouse had two retirement accounts of $150k and $200k, and the other party had one account with $50k, the accounts would be summed and divided. \r\n\r\nIn this case, $400k would be divided, let\u2019s say 50/50, and each party would receive $200k.\r\n\r\nIn most states when contemplating the 401k divorce payout, the funds added to the account (and the appreciation recognized) during the marriage period is considered marital property. \r\n\r\nIf you had a balance prior to marriage that would be treated as separate party and would be negotiated differently. \r\nQualified Plans Require a QDRO in Divorce\r\n\r\nDivorce is a time that you can get access to your 401k or IRAs funds and not pay an early withdraw penalty or tax. \r\n\r\nThis is done via a Qualified Domestic Relations Order, which is a judgement that is made that recognizes an alternative payee\u2019s rights to receive all or a portion of a payout from a qualified retirement plan.\r\n\r\nThis specific order (QDRO) is what allows the preferred treatment of this transfer. \r\n\r\nOften people going through a divorce will not take this incredibly important step and end up losing substantial funds to taxes and penalties. \r\n\r\nIf you are dividing qualified retirement plans, make sure you are bringing this step to your attorney\u2019s attention. \r\n\r\nThe QDRO is required for all qualified plans under ERISA regulations. Those plans include all defined contribution (401k, 403b, SEP, ESOP, etc.) and defined benefit (pension) plans. \r\n\r\nAlthough serving the exact same purpose, the order that an IRA would go through is a called a \u2018Transfer Incident to Divorce Event.\u2019 \r\n\r\nThat would be a separate act/order that would need to be pursued for the efficient transfer of IRA accounts.\r\n\r\nAgain, do not skip this step!\r\n\r\nThe final comment on QDROs is to ensure they are signed and finalized at the exact same time as the divorce proceeding. \r\n\r\nIf one of the parties were to die or become incapacitated after the divorce but prior to the QDRO the funds would revert back to the standard withdraw process.\r\nPension Calculator in Divorce\r\nWord Pension On Calculator\r\n\r\nDividing pensions at time of divorce comes with plenty of emotions. \r\n\r\nOften the person who has a pension has suffered through a long, dangerous career (fire-fighter, police, teacher) and feels entitled to the benefit. \r\n\r\nHowever, that is a windfall the supporting spouse also feels they are owed. \r\n\r\nTwo of the most common formulas used to divide this income stream (divorce pension payout) is the Majauskas Formula or Coverture Fraction/Formula and both have these base components:\r\n\r\n Y = Years of pension service during the Marriage.\r\n T = Total Years of Credit at time of retirement.\r\n Y/T = % of credit earned while married\r\n\r\nWith this as the baseline the couple will negotiate how to divide \u2018credit earned during marriage\u2019 portion. \r\n\r\nFor example, let\u2019s say the working period was 40 years, and the couple was married for 20 of those 40 years. \r\n\r\nThe marital portion would be established at 50%. If the Pensioner was receiving $48,000 per year, than the marital portion would be $24,000. \r\n\r\nThat $24k would be subject to negotiation, and often we see that being split 50/50.\r\nHow to Keep Your Pension in a Divorce\r\nSettling A Divorce\r\n\r\nThe best way to keep your pension in a divorce is to be ready to negotiate generously with the other marital assets. \r\n\r\nEvery attorney, worth their fee, understands the value of a pension\u2019s steady income stream, and there is plenty of precedence in spouses making (and getting) claims to those funds.\r\n\r\nWhat has been successful is to liquidate some of the higher value assets and disproportionately share the windfall. \r\n\r\nFor example, sell the house and net $300k, instead of splitting 50/50, allow the spouse to have the portion that is equivalent to 50% of the marital value of the pension.\r\n\r\nAnother approach is to do something similar with your more liquid assets. Instead of splitting the taxable investment account evenly, give more generously. \r\n\r\nYou can take this approach on the various marital assets until the receiving party is comfortable they are receiving their fair share.\r\n\r\nAnother idea is to purchase a life insurance plan that has an equivalent value to the defined-benefit of ex-spouse\u2019s share of the pension. \r\n\r\nThey would need to be named as the sole beneficiary. Also, look at the terms of your specific pension plan. \r\n\r\nIf the plan has a joint-life payout (continues to pay beneficiary after wage earner dies) and the ex-spouse were to remain the beneficiary that would have a lifetime value that should impact negotiations. \r\n\r\nBased on life expectancy if receiving spouse is expected to live 10-15 years longer and continue to receive a distribution those dollars ought to be brought back to the negotiation table before settling on any split.\r\nSocial Security and Divorce\r\n\r\nThe best source for the rules on Social Security and Divorce benefit eligibility is the SSA directly. \r\n\r\nThe linked resource page is dedicated to the topic and has an easy to read list of criteria. \r\n\r\nIn short, you will be eligible at the time of divorce with social security benefits if you were married for 10 years, are not remarried, you are older than 62, and benefit you would receive based on your work history is less than an eligible portion of ex-spouse\u2019s benefit.