Divorce is a challenging process, and it can have significant financial implications, especially when it comes to retirement savings.
You should understand the steps to take to safeguard your retirement funds during this difficult time.
Understand your retirement accounts
Begin by gaining a clear understanding of the retirement accounts you and your spouse possess. This includes any employer-sponsored plans like 401(k)s or pensions, as well as individual retirement accounts. Knowing the details of these accounts will help you make informed decisions about how to divide them during a divorce.
Evaluate Illinois law
In 2022, the U.S. saw 989,518 divorces, but the states handle the division of assets in different ways. In Illinois, the division of assets during a divorce follows the principle of equitable distribution. This means that marital property, which includes assets acquired during the marriage, gets divided fairly but not necessarily equally between the spouses.
The courts consider each spouse’s contribution to marital property, the length of the marriage, each spouse’s economic circumstances, custody of minor children and pre- or post-nuptial agreements. Non-marital property, including inheritances, remains with the original owner.
Consider trading assets
Instead of dividing retirement accounts directly, trade other assets of equivalent value. For example, one spouse might receive a larger portion of the home equity or other investments. This can help maintain the integrity of your retirement savings while still achieving a fair division of assets.
Negotiate with your spouse to reach agreements that prioritize both of your financial futures, including your retirement plans. Be open to compromise and creative solutions that benefit both parties.
Protecting your retirement during a divorce requires careful planning. Proactive measures can help mitigate the impact of divorce on your retirement savings so you can move into the next chapter of your life with confidence and stability.
