Retirement accounts can sometimes be the most valuable assets a person owns. If you’ve been fully funding your 401(k) or IRA for years, it could form a big portion of your net worth, making it a key asset in your divorce case.
While retirement accounts are protected from creditors in some situations, divorce is not one of those cases. Therefore, the account belonging to one spouse may contain marital property that is subject to equitable distribution.
Retirement Assets as Marital Property
Retirement contributions that were made, earned, or accrued during the marriage are generally marital property. This can be easier to calculate in some cases than others.
For example, you opened an IRA while you were married and made regular contributions. All the funds in the IRA would be marital property.
If you opened the account prior to marriage, the account would consist partially of marital property. The contributions you made before you were married would be separate property that you can keep.
What about pensions? It will depend on the duration of your employment when you were earning your pension. A simple example would involve a pension that accrues over 20 years that overlaps with a ten-year marriage. Half of the pension would be marital property, and half of that property would typically be split evenly between the spouses.
Transferring the Funds
There are several options when it comes to actually splitting up the retirement funds. If you have other assets, you could decide to divide each asset evenly or to let each spouse keep the whole amount of certain assets. For example, you could keep the retirement account and let your spouse have the marital home.
If some of the retirement funds need to be transferred to your former spouse, proceed carefully with the actual transfer and consult an attorney. There can be tax consequences to these transfers if they aren’t carried out properly.
It may be necessary to get a qualified domestic relations order (QDRO) to be sent to the retirement plan administrator. Your separation agreement alone will not be sufficient to permit the plan administrator to transfer funds to someone other than the account owner.
The spouse who receives the share of the retirement account also needs to be wary of the tax implications. Consult a divorce attorney to discuss these issues.
King Law Offices is a full-service law firm with an outstanding team of professionals who work diligently, creatively, and compassionately on behalf of our clients each day. We serve the Upstate of South Carolina and Western North Carolina. Call 888-748-KING (5464) today to set up a consultation with one of our dedicated family law attorneys.