Divorce can happen at any age. However, the closer you are to retiring, the more the end of a marriage can impact your financial future. You and your spouse may have an interest in each other’s retirement assets and dividing those accounts can be challenging.
If you are leaving your spouse, it is critical to consult an experienced attorney for advice on dividing pension and retirement benefits in a Miramar divorce. Without skilled legal help, you could face substantial tax consequences.
401(k)plans are the main source of income for many retirees. However, there are other traditional and non-traditional retirement accounts subject to division in a divorce. Some of these include:
Properly dividing a retirement account depends primarily on what type of account it is and when the spouse acquired it.
Because someone can begin contributing to their retirement early in life, they may accrue a substantial retirement portfolio before they marry. These premarital retirement contributions generally remain that person’s separate property. However, the portion of pension or retirement benefits accrued after the marriage can be marital property subject to division, even if the receiving spouse did not contribute to the pension or retirement account.
When allocating pension and retirement benefits between divorcing spouses, state courts follow the law of equitable property distribution. In doing so, a judge must divide marital property fairly but not necessarily equally. Accordingly, a spouse may or may not receive an equal share of the other party’s retirement assets in a divorce.
Courts may consider numerous factors when dividing retirement benefits. Some of these include each party’s financial circumstances, earning capacity, and how much they contributed to the retirement accounts. As such, a party is advised to consult a skilled attorney to discuss their specific situation.
If a court determines that certain retirement benefits are marital property and divides them between the divorcing spouses, they may issue a specific retirement order called a Qualified Domestic Relations Order (QDRO). A QDRO establishes the non-owner spouse’s legal right to a specific amount or percentage of the other party’s benefits.
Under a QDRO, the retirement plan administrator must divide the account balance and transfer it in whatever manner the non-owner designates. For example, the non-owner spouse could decide to cash out the retirement and take a lump sum payment. Alternatively, they may direct the plan administrator to transfer their portion to another qualified retirement plan. Either way, the recipient of the retirement benefits should consult a seasoned divorce attorney before any transfer.
Pensions are employer-sponsored retirement accounts that typically provide either a lump-sum payment or fixed monthly payouts when the employee reaches retirement age. Many public and private employers offer pensions as part of an employee’s benefits package.
Because pensions continuously accrue the longer the employee works for the company, determining a pension’s value can be difficult. Often, the parties will agree on a valuation date, or a judge will decide when to establish the account’s value. The pension’s premarital portion is then separated from the marital part, and a mathematical formula is used to determine what percentage the non-owner spouse is entitled to receive.
Another unique consideration when determining pension division is whether the employee spouse is vested in the pension plan. Typically, a person must work for an employer for a certain period before being eligible for a pension. This can be a significant factor in pension division if the employee spouse is not yet vested at the time of divorce.
Florida government and military pension plans also present certain challenges in a divorce. Federal regulations may dictate how much an ex-spouse can receive under the employee or service member’s plan. A knowledgeable attorney understands the applicable rules and could help ensure that a pension is appropriately allocated between the spouses.
It is important to manage your retirement accounts properly if you are ending your marriage. Otherwise, both you and your spouse could face early withdrawal penalties and taxes. Our legal team could help you understand the process of dividing pension and retirement benefits in a Miramar divorce. Contact us today to set up a consultation.