Married couples in Massachusetts can accrue decades’ worth of assets before one or both spouses decide to file for divorce. The process of separating those assets can often be the most contentious and time-consuming aspect of divorce proceedings.
Couples may fight bitterly over specific resources, like the marital home or a small family business. Resources with a higher overall financial value and a greater association with future financial stability often inspire more intense responses than less valuable assets like someone’s wardrobe. The retirement savings that the spouses have set aside throughout the marriage could be worth as much as the marital home or even more in some cases. As a result, they can become a point of contention during divorce to be sure.
Savings are often part of the marital estate
To determine whether or not spouses will need to divide their retirement savings in a Massachusetts divorce, it is first necessary to establish whether their savings are marital property or separate property. Often, retirement accounts fall into a gray area and will be partially separate property and partially marital property.
Professionals tend to start funding retirement accounts as early as they reasonably can and might therefore have made years of contributions before they ever got married. Whatever someone added to their retirement account before they got married will be their separate property that they don’t have to share. What they add during the marriage, on the other hand, is subject to division. Interest accrued on a prior balance, employer contributions intended to incentivize employee savings and catch-up contributions during the marriage are all potentially part of the marital estate and subject to division.
The main exception to that will be in a situation where people have a prenuptial agreement specifically setting the retirement savings aside as separate property. Otherwise, even when the account is in one spouse’s name, the balance accrued during the marriage is likely at risk of division during the divorce proceedings.
Dividing an account isn’t automatic
The good news for those concerned about splitting a 401(k) or other retirement savings account is that there is no rule that insists upon the division of specific assets. Instead, the actual terms of property division will depend on what a judge believes is reasonable or what couples agree is appropriate. Spouses can choose to set their own terms that factor in the value of the retirement account without actively splitting it. Judges may do the same. Even if there is a court order to divide the retirement savings, people can typically preserve their resources from early withdrawal fees, taxes and other penalties if they use the right paperwork to divide the account.
Understanding how the Massachusetts courts handle challenging property division matters may benefit those who are worried about what will happen to their finances after they divorce. When it comes to property division – in contentious and amicable processes alike – knowledge is power.