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What happens to your retirement account in a Michigan divorce?

On Behalf of | Mar 21, 2022 | Uncategorized

For much of your marriage, you and your spouse have probably shared your income and worked jointly toward certain financial goals. A secure and comfortable retirement is frequently the biggest goal for a couple thinking about the future other than buying a home.

However, your shared retirement savings can quickly become a complication if you decide that you want to file for divorce. People often don’t understand how property division works in Michigan divorces, especially when it comes to crucial financial assets, like a tax-deferred retirement savings account.

Will you need to share your retirement account with your spouse?

What you save during marriage is subject to division

Many people start a retirement account connected to their employment. Their employers might even offer a meeting benefit for the contributions that they make. It does not matter in the eyes of the Michigan family courts that the account is only in the name of one spouse. What matters is when the balance in the account grew.

The amounts from during the marriage will likely get split, but deposits made before marriage or after a couple formerly splits up may be the separate property of the account holder. The courts will try to split the account in a fair way based on the totality of circumstances from your marriage.

Will you take a loss when you split the account?

If you are nowhere near old enough to retire yet, then you have time to rebuild your savings after dividing it with your spouse. However, people may worry that they will lose a substantial amount of the accrued balance because of the early withdrawal from the account. Given that neither of you is yet at retirement age, you may think that there will be taxes and penalties assessed against the account.

Thankfully, provided that you use a qualified domestic relations order drafted to reflect the property settlement order and approved by the courts, you can avoid penalties for splitting the account for the age of retirement. The funds go directly into a separate account started in the name of the spouse receiving a portion of the original account. As it is not technically a withdrawal but just a division in accordance with a court order, the divorce in a couple won’t need to pay taxes and penalties.

Understanding the property division rules that apply in Michigan divorces makes it easier for you to plan for the future.