What Happens to Retirement Accounts During Divorce?
Sept. 15, 2025
Dividing retirement accounts in divorce can be one of the most financially impactful parts of ending a marriage. These accounts often hold decades of savings and investment growth, making them critical to each spouse’s future stability. The way they’re divided depends on account type, contribution history, and court orders.
At McCarter | East PLLC, we help clients in Murfreesboro and Woodbury, Tennessee, and surrounding areas protect their retirement accounts during divorce. Located just two or three blocks from the local courthouse, we draw on our knowledge of family law and the challenges of retirement division to guide clients through each step. If your marriage is ending, we invite you to contact us to safeguard your financial future.
Common Types of Retirement Accounts Divided in Divorce
Retirement accounts come in several forms, and each is treated differently during divorce. Knowing which type you have is the first step to understanding how it might be divided. Some accounts are employer-sponsored, while others are individually managed.
Each type of retirement account carries its own set of rules, tax considerations, and division procedures. Recognizing these distinctions early can help prevent costly mistakes later in the process. Here are the most common types we see in divorce cases:
401(k) and similar plans: Employer-sponsored accounts where employees and sometimes employers contribute regularly. These accounts often grow through a combination of salary deferrals, employer matching, and investment returns. Division typically requires a Qualified Domestic Relations Order (QDRO) to avoid taxes and penalties.
Pension plans: Defined benefit plans that aim to set a monthly payout upon retirement. The value is calculated based on years of service and salary history, which can make the division more complicated. In many cases, a pension must be professionally valued before it can be divided fairly.
Individual Retirement Accounts (IRAs): Accounts opened by individuals, including traditional and Roth IRAs. These are often divided through a direct transfer or rollover, which can prevent tax consequences. IRAs don't require a QDRO, but still must be split according to precise legal and tax rules.
Each account type has its own division rules, and mistakes can result in unnecessary taxes or penalties. This is why it’s critical to work with legal counsel who understands these nuances from the start.
How Retirement Accounts Are Classified as Marital or Separate Property
Before division can happen, retirement accounts must be classified as marital or separate property. Marital property generally includes contributions and growth earned during the marriage, while separate property may include funds contributed before the marriage or acquired through inheritance.
In some cases, an account may contain both marital and separate portions. This requires careful tracing of contributions and growth over time. Without clear documentation, the other spouse may claim more than they’re entitled to.
Because classification affects division, it’s important to address disputes early. This naturally leads to the question of how these accounts are actually divided once classified.
Methods Used to Divide Retirement Accounts in Divorce
Courts use different approaches to dividing retirement accounts depending on state property division rules. Some follow equitable distribution, which aims for a fair, but not necessarily equal, division, while others follow community property rules, which often split assets evenly.
A good method for dividing an account depends on factors like the account type, the value of other marital assets, and the financial needs of each spouse after divorce. In our experience, certain options are used more frequently than others. Division can be achieved in several ways:
Direct division: Splitting the account itself through a court order or agreement. This method is common for 401(k) plans and similar accounts when both spouses want to share in the account’s current value. It requires precise documentation to ensure the division is carried out correctly by the plan administrator.
Offset with other assets: Awarding one spouse more of another marital asset in exchange for keeping the account intact. This approach can work well when one spouse wishes to retain the entire retirement account while the other receives a larger share of property, investments, or cash. It avoids the administrative process of splitting the account but requires careful valuation to ensure fairness.
Deferred division: Postponing division until the account holder retires and begins receiving benefits. This is often used for pensions, where the exact payout isn't yet known. While it can be a practical option, it also means the receiving spouse must wait, sometimes for years, to access their share.
These methods must be handled with precision to avoid triggering taxes or penalties. The legal orders that facilitate these divisions are equally important to get right.
Legal Requirements for Dividing Retirement Accounts
Certain retirement accounts can’t be divided without a court-approved order. For many employer-sponsored plans, this means obtaining a Qualified Domestic Relations Order (QDRO). A QDRO directs the plan administrator to transfer the appropriate share to the other spouse without triggering early withdrawal penalties.
Other accounts, such as government or military pensions, follow their own rules. These may involve additional paperwork, approval from federal agencies, or specific timelines. Errors in these steps can delay division or result in lost benefits.
Once the legal structure is in place, attention must turn to the financial consequences of dividing the accounts. Even when the division is done correctly on paper, mismanaging the transfer or withdrawal process can result in unnecessary taxes or penalties.
Tax Implications of Dividing Retirement Accounts
Improper division of retirement accounts can lead to significant tax burdens. For example, according to the IRS, withdrawing funds before age 59 ½ without following proper procedures can trigger early withdrawal penalties.
Some divisions allow tax-free rollovers into another qualified retirement account, while others require immediate taxation on distributed funds. Careful planning can minimize these costs and preserve long-term account value.
For those with substantial retirement savings, these tax considerations become even more critical. That’s why our attorney, Gilbert W. McCarter, II, works closely with financial experts when appropriate to protect our clients’ interests.
Special Considerations for Retirement Accounts in High-Asset Divorces
High asset divorces often involve multiple retirement accounts, each with unique rules and values. Pensions may require actuarial valuations, while investment-based accounts can fluctuate significantly in value.
These cases also tend to involve more complicated negotiations, as spouses may choose to trade certain accounts for other valuable assets. This requires both legal and financial strategies to ensure the trade-offs are worthwhile.
These challenges underscore the importance of proactive measures to protect your interests from the start of the divorce process. Addressing potential complications early can help prevent delays, disputes, and unexpected financial losses.
Protecting Your Interest in Retirement Accounts During Divorce Proceedings
Safeguarding retirement accounts requires careful documentation and clear court orders. Every detail matters, from naming the correct plan administrator to specifying the division method. We recommend that clients take steps such as:
Gather account statements: Provide a complete history of contributions, balances, and growth.
Confirm plan rules: Each account may have unique requirements for the division.
Review draft orders carefully: Make sure they accurately reflect the division terms before signing.
By securing this groundwork early, disputes and delays can often be avoided. However, even with preparation, disagreements over retirement accounts can still arise.
Common Disputes Related To Retirement Accounts In Divorce
Disputes frequently arise over the date used to value retirement accounts. Even small differences in valuation dates can significantly change the final division.
Another common conflict involves whether certain contributions are marital or separate property. Enforcement issues can also appear if one spouse fails to cooperate with the division order.
Resolving these disputes quickly is essential to preventing unnecessary expense and stress and setting the stage for a smoother resolution overall.
Reach Out to an Attorney Today
At McCarter | East PLLC, we help clients in Murfreesboro and Woodbury, Tennessee, and surrounding areas manage the division of retirement accounts during divorce with skill and care. We guide you through each step and help you make informed decisions for your future. Contact us today to schedule a consultation and take the first step toward safeguarding your financial security.