Many people become overwhelmed when they realize divorce is on the horizon. Often, they attempt to strengthen their finances for post-divorce independence. Whether it is protecting physical property or intangible financial assets, it is wise to take careful inventory prior to the property division phase of the divorce.
It is not uncommon for individuals to look at their retirement accounts when it becomes obvious the marriage is in trouble. They ask themselves why they should continue to contribute to a fund that will simply be divided between the soon to be former spouses. It is a fair question, but one that contains numerous layers of complexity. For example, certain plans have built-in time frames in which to adjust enrollment status and contribution amounts. You must first verify you can make these changes, or the matter becomes moot.
Are there benefits to ending the contribution?
Individuals often feel they can impact the 401(k) to reduce the amount their partner will receive through property division. As Connecticut is an equitable distribution state, the retirement fund will likely not automatically result in a 50/50 split, but rather a fair split. That said, reducing a contribution or temporarily suspending it will lessen the overall amount, but it will not likely impact the percentage the court finds is a fair division.
For many, the only true benefit to ending the 401(k) contribution is that it would free up additional money for use through the legal process. Whether it is a 4% contribution or a 12% contribution, putting that money directly back into a paycheck can help an individual avoid financial trouble over a lengthy legal process.
When facing the prospect of a divorce, the couple will likely struggle to navigate numerous emotional and financial matters before everything is said and done. It might be wise to carefully examine retirement contributions alongside other intangible financial assets that divorce could impact through the asset and debt division process.