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What happens to retirement savings during an Arizona divorce?

On Behalf of | Jan 12, 2024 | Divorce

Property division is often one of the biggest challenges during Arizona divorce proceedings. Married couples may struggle to reach an amicable settlement when they divide their assets.

The Arizona family courts employ a community property approach to asset division during divorce proceedings. Spouses typically need to treat almost everything they earned or acquired during the marriage as marital property that they both own. Even resources technically held in the name of one spouse, like retirement savings accounts, could be subject to division.

Savings are often marital property

Some people negotiate marital agreements before a wedding that set aside specific assets as their separate property. If there is a prenuptial agreement on record, one spouse might be able to protect their retirement savings from division in an Arizona divorce.

Without a pre-existing arrangement, contributions made during the marriage are likely subject to division. Spouses may need to look over their financial records to calculate what portion of the account is separate property and how much of it is marital property. They then need to include the marital portion of the account in any negotiations related to property division.

Sometimes, spouses can reach agreements in which one spouse keeps the retirement savings while the other receives different assets with a comparable financial value. Other times, either through agreement or court order, it may be necessary to divide an Arizona retirement account.

Typically, early withdrawals from retirement accounts would trigger penalties and taxes. Thankfully, there is a simple way to sidestep that risk during an Arizona divorce. If the spouses draft and sign a qualified domestic relations order (QDRO), they can split a retirement account into two separate accounts without any penalties.

If the divorce goes to trial, the judge hearing the case decides what becomes of marital property, including whether to directly divide the retirement account or not. Spouses do not have any control over how a judge rules, so those eager to preserve specific assets, including their retirement savings, may find that negotiating a settlement is preferable to litigating.

Understanding what assets are subject to division can help people better navigate an upcoming Arizona divorce. When it comes to property division, knowledge truly is power.