Retirement Funds in a Divorce
Retirement funds are the basis of financial security in your later years. They offer the same reassurance to your spouse especially if you have been married for decades. However, a divorce reduces reassurance in many aspects, including access to these accounts when both of you stop working.
Many people visit a divorce attorney concerned about asset protection including their retirement accounts. While many assets are easy to evaluate and divide, the same might not be true with retirement proceeds whether they are within a 401k, pension plan, IRA or other account form. Here is an overview of what to expect for your retirement assets if you are considering divorce.
Property Division Basics
Parties often decide on property division on their own. Most efforts in divorce focus more on support issues and child custody, which makes the property matters nearly secondary. It makes sense. Issues regarding children normally take up much more emotional capital than whether you get to keep the minivan or the SUV.
This can become an issue when there are larger assets involved, such as homes, higher-end cars, rental property or valuable paintings or jewelry. In these cases, the assets may be sold (liquidated) with the proceeds evenly divided between the parties.
Another option involves give-and-take. For example, there could be an agreement that the party awarded child custody keeps the family home but the vacation home and rental properties are transferred to the non-custodial party who is not living in the main residence. There have also been instances where one party maintains ownership of non-liquid investments while the other one keeps the real estate.
With the assets discussed here, they are easily evaluated for a firm dollar amount. When it comes to retirement funds, the matter is not as clear cut.
The Challenge With Retirement Funds
Even if you started accumulating a pension or other retirement assets before your marriage, some or most of it might likely be considered a marital asset. Unless your marriage was very short, your retirement account will be considered in your ultimate property division.
Retirement funds are divided in an additional pleading called a Qualified Domestic Relations Order (QDRO). Many pension plans, like the Massachusetts Teachers’ Retirement System, for example, will not pay out to a beneficiary after divorce without one. This is good for both parties. The one who owns the pension knows the assessed value and how much is paid out. Parties receiving the funds have a guarantee they will secure them and also know how much.
The issue lies in valuating these plans. 401k plans are the easiest: their account balance is the value. Pension plans often involve an actuary or CEO to assign an approximate value. The value is determined by taking the number of expected payments from the pension using actuarial tables. Those payments produce a total which is then considered the value the asset.
Many people worry about the tax consequences of dividing retirement accounts. Outside of the context of divorce, if someone who is not of proper age withdraws money from the retirement account, they might be subject to taxes and penalties. In the context of a divorce and through the QDRO process, attorneys and the court can divide a retirement account without incurring interest, taxes and penalties.
Seek Professional Guidance
As you can see, the issue of retirement funds in divorce involves many layers of professional guidance. You require a financial professional to value your retirement accounts and a family law attorney to represent your interests. This is not a cut-and-dry do-it-yourself area of the law. Just as it is often advised to never represent yourself in a divorce when there are children involved, the same is frequently advised for divorce and retirement accounts too.
For assistance with your divorce and property division, including retirement funds, contact Infinity Law Group. We have offices conveniently located in Boston, Needham, and Quincy or you can call (855) 941-0909 for a free telephone consultation.