How to Prevent a Divorce from Consuming Your Retirement Savings

Reviewed by Molly Moorhead, CFP®
Two people stand on opposite sides of a bridge as it crumbles into flying birds to represent divorce. This is a photo illustration.
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We’ll start with the bad news: Divorce rates for people in their 50s have doubled since the 1990s. And a recent study from the Center for Retirement Research at Boston College found that divorce correlates with the likelihood of financial risk in retirement.

So you’re nearing retirement and you’re getting divorced and this divorce may wipe out your retirement savings? Wait, there’s good news: It doesn’t have to be that way. When you’re getting divorced, there are ways to protect your future.

Here’s what you need to know about divorce and retirement.

Hard Truth: You’re Going to Have to Share Your Savings

Retirement savings are typically part of what’s known as your equitable distribution calculation.

Translation: Unless your retirement funds weren’t accumulated during your marriage, an ex-spouse will have the rights to them, says Dmitriy Shakhnevich, a New York-based attorney. “This is because, in theory, the idea is that if parties are married then the accumulation of assets by one party becomes marital property, the same way a car or a house would.”

So when you get divorced, don’t be surprised if your ex is entitled to half of your 401(k) (considered to be joint property) that was accumulated during your marriage — even if he or she didn’t work at all. The big exception is if you had a prenuptial agreement that discussed this.

Those are the rules — but there are ways to make divorce and retirement coexist harmoniously.

Don’t Use Your Retirement Funds to Pay for Your Divorce

Often, divorcing couples pull money out of retirement accounts because they simply don’t have other available liquid funds to handle the substantial expenses of a divorce — or because one or both parties become very litigious, says Dori Goikhman, an attorney-mediator and founder of Off the Record Mediation Services based in Silicon Valley.

“If a divorcing couple pulls money out of retirement plans improperly, they may be hit with tax penalties, and may also be liable for income tax which would otherwise be deferred,” Goikhman said. “They may also lose the potential for tax-free/deferred growth, depending on the nature of the plan.”

If the couple attempts to split their retirement plan assets without a proper divorce decree and court order, they may also end up subject to penalties. Essentially, division of retirement plans is complicated and should be handled by an experienced professional to avoid substantial fines.


If you’re preparing for a divorce and making contributions to a retirement account, you need to file as soon as possible, because any post-filing contributions made to the account are not divisible with your soon-to-be former spouse, says Rajeh Saadeh, a high stakes divorce and family attorney in New York and New Jersey.

In other words, once you’ve filed, any money you add to that retirement account is 100 percent yours. So keep contributing!

Continue to Save

Many people who are going through marital problems tend not to continue saving for retirement strategically, as they know these savings would be divided in the divorce anyway, Saadeh says.

More specifically, in a divorce, retirement assets accumulated during the marriage are divided no matter whose name is on the retirement accounts.

Enter into a Qualified Domestic Relations Order

Retirement savings are usually in the form of tax-deferred accounts such as 401(k)s and IRAs. These accounts can be split between a couple, but you may only split the portion that was contributed during the marriage, aka the marital portion.

But it’s incredibly difficult to determine what the marital portion is when both the marital and non-marital portions have been growing in value. So don’t just split your retirement plan 50/50, says Russell Knight, a divorce attorney based in Chicago.

“The only way to truly determine the amount is to enter into a Qualified Domestic Relations Order (QDRO),” Knight said. “A QDRO will empower the retirement plan manager to use actuarial software to determine the marital portion to the penny on the date of the divorce.”

Then, the manager will create a second retirement plan for the divorced spouse, and transfer their portion to the new plan.

This is What Happens Without a QDRO

To split the pension or 401(k) in a divorce without tax consequences, the spouses need to get a QDRO. This allows the account to pay out the money to the other spouse without tax issues.

If this is not correctly completed and accepted before the divorce is final, then the money moves with a tax consequence, says Beth Logan, author of “Divorce and Taxes after Tax Reform.”

“Let’s say Drew, age 46, has to pay Chris $150,000 from Drew’s 401(k),” Logan said of a situation without a QDRO in place. Now, Drew has to pay federal taxes, a federal tax penalty of 10 percent for withdrawing the funds before turning 59 ½, and possibly state tax. “That can easily be 30 percent or $45,000,” she said.

Where will Drew get $45,000? Probably by draining the retirement, which will trigger more taxes.

A good tax professional should look at the expected after-tax value of the retirement fund and split the savings so the couple pays the least taxes now and in the future. This may result in one spouse getting all the Roth income while the other gets the 401(k), for example. Or it may result in one spouse getting the entire retirement while the other gets the cash the couple accumulated – which may appear unfair, but in the end will result in more money for each.

“It is important to know the timeline to retirement and other plans along the way,” Logan said.

Attempt to Limit the Length of Your Divorce

Arguing over assets may end up costing more than the assets themselves, said Adam Citron, a partner at Davidoff Hutcher & Citron LLP in New York.

“Many times, parties will ultimately withdraw from and deplete savings and specifically, retirement savings, in order to continue to fund the litigation and pay the attorneys’ costs,” he said.

It’s important to keep your sights on the big picture, and evaluate decisions from a business perspective, rather than an emotional one.

Danielle Braff is a contributor to The Penny Hoarder.