Retirement Accounts & Divorce
Inspired by the blog from Gevurtz Menashe, “Retirement Accounts and Divorce,” this topic touches on one of the most misunderstood pieces of financial separation: how future money, your retirement gets divided when a marriage ends. After more than 30 years in home lending and two decades specializing in divorce mortgage planning, I’ve seen how these decisions ripple far beyond the decree. Let’s explore what this means in practical terms.
1. Retirement accounts are subject to division.
Even if your name isn’t on the account, if contributions or growth happened during the marriage, it’s usually considered marital property. A 401(k), IRA, or pension is not automatically “yours” just because it’s in your name. Think of it as part of the shared financial puzzle created during your partnership.
2. Separate vs. marital portions matter.
If one spouse entered the marriage with savings or a retirement plan, that original portion may remain separate. But the growth or contributions made during the marriage often become marital. For instance, if a 401(k) started at $30,000 and grew to $130,000 during the marriage, the $100,000 difference is likely considered joint. That distinction can make a big impact on settlement fairness.
3. Oregon’s equitable framework guides the division.
Oregon follows an “equitable distribution” model—meaning assets are divided fairly, not necessarily equally. In long marriages, fairness often translates to a 50/50 division, but courts can weigh other factors such as income potential, years of contribution, and non-financial support within the marriage.
4. Beware of tax and withdrawal pitfalls.
The method of division matters as much as the numbers. If funds are moved incorrectly, you could trigger income taxes and early withdrawal penalties. Transfers handled through a Qualified Domestic Relations Order (QDRO) or a trustee-to-trustee transfer avoid those hits and ensure the division complies with IRS rules.
5. The paperwork makes or breaks the outcome.
A divorce decree alone doesn’t guarantee action. For 401(k)s and pensions, a QDRO is required to direct the plan administrator to divide the funds. Without it, nothing happens and I’ve seen too many cases where people assumed it was automatic and lost access to assets that were rightfully theirs.
How this ties into your mortgage planning
When you’re planning to buy out a spouse or refinance post-divorce, timing and liquidity are everything. “Half the retirement” on paper isn’t cash you can spend. Make sure the transfer is completed before relying on those funds for qualification or down payment. Also, factor in taxes, market risk, and long-term growth when comparing retirement assets to other property such as home equity.
Retirement accounts are not just financial tools, they're the roadmap to your future stability. Dividing them requires thoughtful coordination between your attorney, financial planner, and mortgage professional. Clarity now means security later, and that’s the kind of planning every divorcing client deserves.