Protecting Your Financial Future: The Risks of Splitting Retirement Accounts in Divorce

The Pitfalls of Splitting Retirement Accounts by Dollar Amount

When filing for divorce, many seek a quick resolution to start anew. However, rushing the process, especially when splitting retirement accounts, can jeopardize financial security. Divorcing spouses must carefully navigate all aspects of divorce to protect their future. Neglecting this, particularly with splitting retirement accounts, may lead to lifelong financial hardship.

One common error that some divorcing spouses make is deciding to split retirement funds by a specific dollar amount. While this may seem like a wise method to protect your future, doing so can leave you in a financial rut after the divorce is finalized. How?

Because the economy is constantly fluctuating, the value of the dollar is never set. Of course, this is due to inflation. So then, when a couple decides to divide a retirement account by a specific dollar amount, one spouse can end up receiving far less of the funds than the other. Below is an example.

Real-Life Example: The Risks of Unequal Fund Distribution

Bob and Sue decide to file for divorce. Together, the two of them have a retirement account worth $100,000.00. When the two decide to divorce, they agree that Sue will take $50,000. Then, the economy fluctuates greatly, and now the value of a dollar is only half of what it was before. Now, the account is actually only valued at $50,000.00. So, Sue walks away with the entire retirement account, and Bob is left without any funds from the account.

While this is only an example, such situations may occur if divorcing spouses are not careful. To avoid such problems and other serious issues, individuals contemplating divorce should seek experienced legal representation right away. A skilled lawyer can ensure a person’s rights and future are protected.

If you are contemplating divorce and would like to ensure your rights are protected, get in touch with our divorce lawyers today. We can stand by your side from start to finish.