Retirement can last for up to a third of your life, so it takes substantial savings to ensure a decent quality of life during those golden years. Most Americans begin saving for their retirement in their 20s or 30s.
Estimating their cost of living and spreading the total cost of their retirement out over many working years while simultaneously investing those funds to ensure a decent rate of return allows many Americans to prepare for a happy and fulfilling retirement.
Unfortunately, if you get divorced right before or during your retirement, the chances are good that the end of your marriage will impact your retirement savings. Many people don't understand the rules about asset division in Louisiana divorces. It is common for people to believe that they are the sole owners of the retirement account because it is only in their name. However, that is not how property division works in Louisiana.
Louisiana is a community property state
There are many different ways in which the courts can divide your assets during a divorce, and each state has its own rules for couples ending their marriage. Community property states like Louisiana consider all of the income earned and assets acquired during a marriage to belong equally to both spouses, regardless of who earned more or whose name is on which account.
There are some exceptions to this classification as community property, including any inheritance that you receive and assets you owned before you got married. Items, income and assets you agreed to keep separate in a prenuptial or postnuptial agreement will also typically be exempt from division in the divorce.
Pretty much everything else is subject to division, even if the account is only in one spouse's name. The courts will look carefully at the circumstances of your marriage and then determine what is the most reasonable and fair manner in which to divide your assets. That will likely include your retirement account, 401K or pension.
How the courts divide your retirement assets
Typically, if you withdraw anything from your retirement account before a certain age, you incur a financial penalty, which is meant to deter people from borrowing from their retirement savings. Thankfully, when you go through the courts for a divorce, you don't have to worry about incurring those penalties.
The courts will issue a Qualified Domestic Relations Order (QDRO) that instructs the plan administrator for your retirement account to create a second account and deposit the funds from the second spouse into that account. In some cases, the courts can also order spousal support after retirement as a means of splitting a pension earned during the marriage.
While splitting your retirement with your ex can reduce your overall savings and force you to reconsider some of your retirement plans, at least you don't have to pay extra taxes or penalties on those amounts.