You have to save throughout your entire working life to fund a comfortable retirement. You and your spouse may have put aside money for decades together to prepare for your golden years.
If you file for divorce, you will have to split your property with your spouse. There’s a good chance that your retirement savings will be subject to the equitable distribution rules applied in Colorado divorces. Those rules will apply to any retirement savings or pension funds accrued during the marriage unless you have a pre-existing marital agreement addressing those assets.
What will happen to those pension and retirement funds when you divorce?
You may need to share your savings, but you can avoid penalties
Most couples will divide or share retirement accounts when they divorce. In some cases, the value of the account influences decisions about other aspects. Splitting the account may be the fastest and fairest way to handle retirement savings, but there are risks. Early withdrawals come with tax penalties, after all. Thankfully, you can avoid those penalties if you take the right steps.
When you agree on a specific way to divide the account or have a ruling about property division, the attorney for one of the spouses will draft a Qualified Domestic Relations Order (QDRO) and submit it to the courts for approval.
After receiving approval, the spouses can then submit the QDRO to the party in charge of the retirement account. Account withdrawals and divisions that occur in accordance with a QDRO do not trigger the taxes and penalties people usually have to pay for pulling funds out of their retirement accounts.
Learning more about the division of your assets will make your upcoming divorce less stressful.