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What happens to your retirement account or pension in a divorce?

Married couples tend to plan for their future together. Your retirement budget and savings likely reflect an intention to live with your spouse and share your expenses and savings during your golden years.

However, just because you’ve planned something doesn’t mean that life will go the way you hope. Any of a number of marital issues might arise that will leave you or your spouse desiring a divorce. If you do choose to end your marriage, what kind of impact will that have on your retirement?

If you stayed home to support the family, will you lose your retirement savings? If you worked diligently for years, will you have to share your pension?

How Michigan approaches splitting up your property

If you don’t have a marital agreement guiding the distribution of your property and you don’t agree about what is a fair and reasonable way to split your assets and debts, the family courts will eventually have to weigh in on the issue.

Family law in Michigan requires a fair and equitable division of your marital property, although each spouse has the right to retain their separate property without losing any of this in the divorce. Assets and accounts owned prior to marriage will probably remain your separate property, as will any gift or inheritance you or your spouse receive during the marriage. Most everything else will be subject to division by the courts.

Retirement accounts and employer pensions often fall into a gray area because part of the balance in the account is separate property accrued prior to marriage and the remainder is marital property. Determining how much the account had before you get married is a good starting point for establishing how much of the retirement account or pension is likely to get split up by the courts.

The courts can issue a QDRO or even order alimony

If at least a portion of the retirement account is marital property, you will likely receive a Qualified Domestic Relations Order (QDRO) as part of your final divorce decree. This document will instruct the professional managing your pension or retirement fund to split a certain portion of the balance off into a separate account. These documents benefit the divorcing couple because they allow for the division of retirement benefits without any fees or penalties for early withdrawal.

In some cases, the courts may choose instead to order alimony so that the spouse receiving pension benefits will have to share a portion of those benefits with their former spouse. Although you can expect to share your retirement savings with your spouse, the exact way that the courts divide them will depend on a variety of factors from your marriage, including its duration and the earning potential of both you and your spouse.