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What happens to retirement savings in Pennsylvania divorces?

On Behalf of | Jul 9, 2024 | Divorce

Divorcing couples have a lot to discuss. There are numerous practical matters they need to address with each other ranging from who stays in the marital home to how they split time with their children. It is relatively normal for spouses to disagree about how to separate their finances. The longer the marriage lasts and the more successful the spouses are, the more opportunities there may be for conflict.

For example, many middle-class professionals in Pennsylvania have retirement savings. One spouse may have a pension offered by their employer or might contribute to a 401(k) annually. Retirement savings can be worth as much as a marital home, or even more, depending on the circumstances.

Do people generally need to divide retirement savings in Pennsylvania divorces?

Retirement savings and pensions can be marital property

Everything people own gets grouped into two categories during divorce. There are marital assets that people have to share with each other and separate or non-marital assets that each spouse keeps. Some people expect their pensions, 401(k)s or other retirement funds to be their separate property. They believe they should retain everything in the account.

However, the chances are good that those resources are at least partially marital property. What matters is when someone set money aside for retirement, not whose name is on the financial account. Contributions made with marital income, including employer-matching contributions, are potentially subject to division during a divorce.

That being said, there is no rule that says spouses must divide every asset. After quantifying the marital portion of a retirement account, spouses could potentially negotiate an arrangement that allows one spouse to keep those funds in consideration of other assets.

If the division of the retirement account is necessary, there are procedures in place to avoid penalties and tax consequences. Early withdrawals often push people into higher tax brackets and trigger a financial penalty. Those who divide the account as part of a divorce using the right paperwork can sidestep those consequences.

Understanding what resources are subject to division can help those preparing for divorce negotiations in Pennsylvania. Retirement accounts may seem like separate property but are often part of the marital estate for the purposes of property division.

 

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