Does Divorce Affect Retirement Benefits?

By Bob Matteucci

Most divorcing couples understand that splitting up will mean splitting up their assets as well. What many New Mexico residents do not realize is that the court may make you split up the assets you have accumulated so far AND the ones you expect to earn in the future — things like the proceeds of retirement accounts, Social Security benefits, pensions, and unique assets like stock options or ownership interests that will vest in the future. 

If these assets are not handled with care, you and your former partner may face significant tax penalties, lose benefits you would otherwise enjoy, and ruin your chance to retire the way you intended. 

As an experienced family law attorney, Attorney Bob Matteucci can help ensure the courts will agree with whatever plan to split up your retirement assets you and your partner agree to. And as a former business owner and someone with an MBA as well as a law degree, Bob can make sure your divorce agreement makes financial sense as well. 

Why are retirement benefits subject to division at divorce? 

Unless you are already retired, you likely see your retirement benefits as something you are working toward, not something you already have in hand. This is why many couples do not realize that retirement benefits are subject to division at divorce. 

But under federal law (mainly Social Security laws and the Employee Retirement Income Security Act of 1974 or ERISA) and New Mexico’s community property laws, retirement assets are very much in play at the time of a divorce. 

Retirement Accounts

Retirement accounts like 401ks and IRAs can only be held in one person’s name, but in a community property state like New Mexico, the money in them is considered jointly owned by the contributor and his or her spouse. During a divorce, it is necessary to divide up the value of these assets — if not the assets themselves. 

Some couples are happy to split up retirement accounts 50/50, often rolling money from a larger account into a smaller one to avoid the tax penalties that come with taking money out early. 

Other times it makes sense to keep a retirement account intact and offer the non-contributing spouse different assets to make up the difference. In today’s hot housing market the family home is often an asset that one person will gladly take in exchange. 

Ownership Interests and Stock Options 

.If you are the owner of a business, an early employee or investor, or sit in the c-suite you may be working hard now knowing that it will more than pay off in the future. If your expectations are not speculative and your deferred compensation is certain, you should expect to share your interest in these future benefits with your former spouse at the time of your divorce. 

What the division of these future benefits looks like can get complicated since they may only exist on paper. Attorney Matteucci can work with you to negotiate a divorce settlement that recognizes the support your spouse gave you as you built your career while respecting the fact that these benefits may not actually exist. This often means giving your spouse a greater share of your current assets. 

Social Security & Pension Benefits

There is a complex web of laws that governs exactly how Social Security benefits and most pension benefits can be divided at divorce. Figuring out what’s appropriate in your situation typically involves comparing how long you have been married to the time or times you were accruing benefits. 

Attorney Matteucci can walk you through these calculations and help you file the paperwork necessary to ensure benefits are paid directly to whoever they are supposed to go to going forward. 

Serving New Mexico Families with Dignity & Compassion

As a seasoned family law attorney, and a divorcee, Bob Matteucci understands better than most how frustrating it is to feel like your dreams for retirement are getting wrecked by your divorce. But it is important to remember that your plans for retirement are not the only things that are changing right now. 

You wouldn’t be getting divorced if you were content with the path your life is currently on. You are daring to change direction. Holding on to disappointment and refusing to focus on the new future that is now before you will do more to ruin your retirement than shifting around your assets ever will. 
Attorney Bob Matteucci is ready to help you navigate the financial and emotional minefields you are facing as you reconsider your retirement in light of your divorce. Please contact Bob today to discuss your case.

About the Author
Bob Matteucci is a board certified family law specialist, with a statewide practice in the area of divorce and family law.