Since Connecticut is an equitable distribution state, retirement savings may get split in a divorce.
Various retirement accounts have different regulations and tax obligations, so it may be challenging to ensure each spouse gets their fair share.
Employer-sponsored retirement plans, often called pensions, are joint assets in a divorce. Couples can decide how they want to share the funds, but the most common ways to split pensions are:
- Deferred distribution – courts determine the percentage paid to each person during the divorce proceedings, and then funds get distributed at that rate upon the account holder’s retirement
- Present value – courts calculate the current value of the pension and distribute property equal to that value to the nonemployee spouse
Cash-value life insurance
Life insurance policies that gain value over time belong to both spouses. The options for sharing the funds are:
- closing the account and splitting the proceeds
- offering property in exchange for the other spouse’s share of the investment
Savings plans such as 401Ks are marital property no matter when either spouse contributed to the accounts. The only exception is if a prenuptial agreement excludes preexisting plans.
A separate court order is necessary to distribute funds after a divorce. This court order prevents banks from collecting penalty fees for removing funds from the account before age 59 1/2. The IRS does not charge income taxes as long as this money goes directly into another Individual Retirement Account.
With proper planning, spouses can receive their fair share of marital retirement savings.