Spouses in Illinois who choose to end their marriages may find that divorcing has a significant impact on retirement plans. Because retirement funds are often a married couple’s largest single asset, both partners may have to deal with a substantial cut to their retirement savings after the accounts are divided as part of the divorce. This can mean that divorcees have to plunge right away into a financial plan that optimizes saving for the future in order to rebuild depleted retirement funds. This can be especially true as many people may take loans or early withdrawals from their accounts in order to address some immediate post-divorce costs.
The psychological effect of dividing retirement funds in a divorce can be profound as the accounts may feel more like individual savings than marital assets, especially in comparison to other major assets like homes and joint bank accounts. The economic effect can also be significant; on average, divorced American households have 30 percent lower net worth than those who have never had a divorce. They are also 7 percent more likely to have inadequate savings to get through retirement.
Depending on the circumstances, divorcing couples can deal with retirement funds in a number of ways. If most of the funds are in one account, they could divide the existing accounts in half or develop a different split, especially related to how other assets are divided. Sometimes, people with similar incomes and savings simply decide that each partner will keep his or her own retirement account.
Dealing with retirement funds in a divorce can be among the most complex parts of the financial negotiations that surround the end of a marriage. A family law attorney can work with a divorcing spouse to protect assets and achieve a fair outcome in negotiations over property division and other key issues.