Aside from custody agreements, most issues in a divorce revolve around money. There are an immense number of accounts and plans that need to be agreed upon before a divorce can be settled. Here, we break down some common accounts that need to be settled in a divorce agreement.
Technically, pension plans are a community asset, so each spouse is entitled to a portion of it. There are formulas you can refer to in terms of determining what the community interest is of that retirement plan. There are special pension plans, like in the military, that have different rules that apply. Under that example, you have to meet certain requirements to get direct payment after a divorce, but that is handled in a completely different manner.
Inheritance is a separate property item. Even if one spouse inherits during the marriage, the other spouse is not entitled to any of that inheritance. The difficulty comes when, especially in long-term marriages, you are trying to trace what happened to those inheritance funds. You can only retain separate property if you can prove the money is still there at the time of the divorce. If the inheritance is put into the couple’s joint bank account or is used on other things like a family vacation, the money has been co-mingled and is almost impossible to identify.
Retirement plans work similar to pension plans with one major difference. Most companies require a QDRO to receive certain benefits in a divorce. A QDRO stands for Qualified Domestic Relations Order. If you work for a company that has a retirement plan and it is being divided in a divorce case, you will need to get a qualified domestic relations order signed by the judge. More importantly, it must also be approved by the company. Many companies have their own forms they want you to use, so it is important to make sure that you receive confirmation that the company accepted it.
These accounts are not necessarily split 50/50. It is important for attorneys to look at the big picture, especially how large the estate is, how many different assets there are, and what kind of tax consequence each asset has. Often, attorneys will consult with CPAs and financial planners to have them look at the breakdown of any investments, inheritance, 401(k)s, stock options, pension plans, and any other accounts to help everyone understand what settlement will be best for the client. Every detail must be taken into consideration for each of these situations.
BONUS CONTENT: When should I tell my fiancée that I want a prenup?
When your relationship goes from a dating relationship to potentially an engagement or marriage relationship, you need to hit that issue head on, be very direct about it, and talk about it—the earlier, the better.
When you talk to your attorney about the details of a premarital agreement, the attorney will to want to know what discussions you’ve had with your fiancée. Do they understand what they’re giving up or what they’re getting as a result of signing one? There are provisions for disclosure of assets, nondisclosure, and waiver of disclosure and you want to make sure that they’ve had detailed discussions about that. The negotiation process can become fairly lengthy, especially in cases where you have somebody who has significant assets.