One of the more complicated aspects of the divorce process is dividing assets. It can get particularly complex when there are various retirement accounts, including IRAs, 401(k)s, pensions, and other income targeted toward retirement.

In most cases, those accounts will be split between spouses, but how they are divided depends on a slew of factors including when the funds were accumulated, the laws of the state, and the rules governing the accounts.

In some cases, the money will be split immediately. In others, a house or cash might be offered in place of retirement payouts.

Get a clear picture of your retirement funds during a divorce

One of the most important steps is to quickly get a clear financial picture, says David Smith, a certified divorce financial analyst (CDFA) based in Panama City, Florida. This is particularly important if you haven’t been handling the finances in the marriage and aren’t aware of the details of each account. 

This is often when a financial expert can help create an organized report of all the funds, collecting account numbers, and records of assets and debts. You need to find out details such as if you are a registered user versus a joint account holder.

Smith suggests pulling a credit report ( from one of the three credit agencies “to make sure there aren’t surprises they don’t know about.”

Smith also suggests clients set up a new email address just for divorce-related communications in order to maintain privacy from their partner.

If you have credit cards or bank accounts in only your name, consider changing the passwords. You may also want to ask for a credit limit increase in case you need funds later if you are shut out of other accounts.

You or your financial advisor can notify the administrator of any retirement accounts that a divorce is happening. Then, typically no changes can be made to the account, such as withdrawals, loans, or password changes.

The vast majority of divorce cases are settled without going to court, so getting a handle on assets and debts can help save time, money, and frustration.

“It’s my hope that people will go through the process in an amicable manner,” says Smith. “When people do it in a kinder, gentler fashion, it’s better for the family, kids, and for future relationships.”

What is a qualified domestic relations order (QDRO)?

When reviewing your financial situation, it’s important to note whether funds are considered marital property or belong to each individual. In most cases, if retirement resources were collected during the marriage, they would be divided during a divorce. However, if contributions were made to accounts before the marriage, they would not be considered property of both spouses.

“The most important distinction with retirement assets is to determine those assets that were earned during the marriage versus assets that were earned premaritally or might not be fully earned at the time of a divorce,” says Beth Garrett, an accountant and tax partner based in metro Atlanta.

It’s critical to have documentation for what existed before marriage as well as those compiled during marriage. “For more complicated retirement assets or other employee benefits such as deferred compensation or stock options, the plan documents and any information about vesting will need to be provided to determine the portion that could be marital versus what could be kept separate.”

State rules also come into play. In some states, the definition of “during marriage” ends when the couple separates. For others, it’s when the divorce papers are served or not until the divorce is official.

Most states divide assets by what is “equitable,” not necessarily “equal.” That means what is fair based on the circumstances of each situation. Few states require that assets be divided exactly in half.

Then check the details of your retirement plans. Some offer the option of a lump sum payout when you are eligible versus monthly payments. And note whether there are survivor’s benefits.

If it’s your account, you may want to offer a lump sum to your spouse or a tradeoff for another asset, like the house. Often, if the marriage was short or there’s a long time before benefits, a couple will opt to do this so they aren’t tied together financially forever. Be sure to follow IRS rules so that you don’t pay penalties for withdrawing retirement funds too early. You must have what is known as a qualified domestic relations order (QDRO) to divide employment-related retirement plans. A QDRO is a legal order for a retirement plan to pay benefits to a spouse, child, or former spouse.

Consider all options when dividing retirement funds during a divorce

If you and your spouse don’t want to have financial connections, it’s often common to offer something in place of retirement benefits that is of a fair value. This could be cash or property.

“It is important to be aware of the relative liquidity or potential tax consequences attached to an asset,” says Garrett. “For example, the equity in a house cannot readily be turned into cash.”

Although a retirement account might be more accessible, you have to pay taxes and maybe even penalties.

“Even with these considerations, it may still be in the best interest of the parties for them to each take different types of assets rather than trying to divide all of them,” Garrett says

A certified divorce financial analyst can help split retirement funds

Divorce can, of course, be complicated, and the separation of finances and retirement funds can be a significant part of that process. Because of the complexity of dividing current and future funds, you might want to consult an expert to help.

Certified divorce financial analysts (CDFAs) specialize in dividing assets and debts during a divorce. They can do research on the existing retirement plans, collect documents, do a cash flow analysis, research tax information, and identify the initial financial picture.

“I believe it’s best to get someone involved as early as possible,” says Smith. “A person is dealing with all these emotions while making big financial decisions … it’s good to have somebody holding your hand.”