Iowa considers retirement accounts and pensions to be marital property, making them subject to property division by the court in a divorce. In each case, Iowa courts determine how the pension needs to be divided and how the amount awarded should be paid.
All marital property must be divided “equitably,” which means the court will divide the property fairly but not necessarily equally. The court considers a wide variety of factors—such as length of the marriage, the age and circumstances of each spouse, and the property each spouse brought into the marriage—when determining property division.
It is imperative to take the time and ensure your financial future. Many divorce spouses typically underestimate the impact their separation can have on their retirement.
The following are four steps to protect your retirement assets during a divorce:
- Determine what happens to your retirement plans. The IRS requires a qualified domestic relations order (QDRO) to divide the amount in a retirement account between two former spouses. Consult with a financial advisor and hire a divorce lawyer familiar with how retirement plans are affected by divorce.
- Consider tax implications on retirement accounts. There are different tax implications on various accounts. For example, 401(k)s and traditional IRAs are pre-taxed while you contribute to Roth IRAs after you pay taxes on your income. So depending on the type of retirement accounts you have, the amount in the account may not be the amount you receive due to taxes.
- Change your beneficiaries. One of the most important steps in a divorce is changing your beneficiary designations on all of your retirement accounts. You soon-to-be-ex-spouse will still inherit your retirement funds if it says so in your account.
- Review your Social Security benefits. If you were married to your spouse for, at least, 10 years prior to the divorce, your spouse can receive a portion of your Social Security benefits. Compare your Social Security benefits with your soon-to-be ex-spouse's benefits.