Dividing retirement assets in a gray divorce

The financial considerations of divorce are different for older couples. You have fewer years left to plan and save for retirement and, as a result, a lot more to lose.

Understanding how to divide your retirement accounts, likely your largest asset, is crucial. It may also be as complicated as your relationship with your soon-to-be former spouse.

Adding up your income

The first thing to know is that your finances are probably going to suffer as you split your set income across two households.

In short, almost everything is on the table when dividing retirement assets. This includes 401(k)s, pensions and IRAs. Some couples also own annuities, adding another level of complexity.

An exception is Social Security, which is not part of marital assets. While the benefits are not open to division, a couple can make their own deal. The spouse with the higher income or better benefits can agree to payments to make up the difference. The couple can also decide to trade other assets.

Dividing your assets

A couple may decide to reach an asset agreement on their own. Unfortunately, running afoul of the rules can mean someone takes a financial hit or faces a surprise tax bill.

You may also need a qualified domestic relations order or a domestic relations order, known as a QDRO, or DRO. It is a  court order  that allows spouses to receive 401(k) and pension funds from each other. Taxes and penalties can apply, depending on what you do with the money. Making matters more complicated, a QDRO does not cover IRA accountsan attorney experienced in dividing retirement accounts.

The challenge of dividing property can test even the most amicable spouses. The laws are complex and finances add tension to settlement negotiations.

Reaching the final sum

With retirement around the corner, you cannot afford to make mistakes. Legal and logistical surprises can undermine your plans and your future.

Remember: It is not a matter of “winning” or “losing.” You have a better chance of reaching a good settlement if your goal is fairness.