It depends on the outcome of a settlement agreement between you and your ex-spouse, but, yes, it definitely can. Laws vary between states, but just like any other property asset, retirement benefits are included within the chunk of marital property assets that can be divided according to state divorce laws. Retirement benefits can be awarded to a spouse to offset unequal property distribution or can be awarded to a spouse to cover child support payments.
Most states will consider any money contributed into a retirement account prior to the date of marriage as separate property, but not every state does so. States that don’t include pre-marital property will let the owning spouse keep the portion they earned and contributed to as their own. Courts will then take the remaining portion and split between the spouses pursuant to the divorce, which means, even though a state may have equal distribution of property, the owner of the benefit could walk away with more than 50% of their retirement account balance.
You’ll need to be Familiar with the Process for Retirement
Typically, the most common types of retirement plans are IRAs, 401ks, and pension plans. Federal guidelines dictate how to divide funds in 401(k) s, 403(b) s, and other similar plans, while state laws mandate how to divide IRAs and state pensions. Although any retirement asset can qualify as marital property, not every type of retirement account can be actually disbursed.
Generally speaking, retirement benefits cannot be distributed to anyone other than the actual plan participant. The Employee Retirement Income Security Act (“ERISA”) allows exceptions to this rule via a Qualified Domestic Relations Order (“QDRO”). A QDRO is basically just a court order instructing the applicable retirement plan to divvy up retirement benefits to someone other than the plan holder, i.e. the spouse. This document requires multiple steps to be completed before submitting to a court for approval upon settlement of a divorce, so it’s important to discuss the specifics with a divorce attorney.
An IRA is not subject to the rules under ERISA, does not need a QDRO for transfer, and most plans will have some mechanism available to transfer benefits pursuant to a divorce.
Some retirement plans will allow a spouse to receive their benefit award pursuant to their normal retirement age rules or receive it via one lump sum payment. Tax implications will result immediately from a lump sum payment, but not all plans specify who is responsible to pay that tax, which means it needs to be negotiated by an attorney. This can often be a difference of thousands and thousands of dollars depending on the amount awarded.
What If My Spouse Handled All the Finances?
Discussing retirement planning with your spouse and keeping records of any retirement accounts is the smartest thing one can do when it comes to planning their future. If you don’t personally handle the finances in your household, the easiest and best thing to you can do is to ask questions and be aware of the accounts your spouse holds. It’s not as important to know the specific amount of a retirement plan as it is important to know that a plan exists. Any details regarding a retirement plan can be revealed in a divorce through the discovery process.
Is There Anything I Can Do to Help During a Divorce?
The easiest thing you can do during a divorce is provide your attorney with any and all financial information you have access to, which includes retirement account statements. If you don’t have any, your attorney can help gather this information during the discovery process.
Additionally, financial information unrelated to retirement is important to provide to your attorney because it can affect the amount of retirement benefit you are awarded as part of the divorce. Different types of retirement accounts, for example, a defined contribution plan versus a defined benefit plan, have different values at the time of divorce. A defined contribution plan’s value is ascertainable at a more definite value than a defined benefit plan. The value of an account can heavily impact any award distributed at the end of a divorce, which, again, could mean a difference of thousands of dollars. Depending on your financial situation as a whole, this can affect how your attorney will negotiate retirement benefits on your behalf.
Be Prepared For What Comes After
The rules regarding the different types of retirement plans vary from plan to plan and company to company. Even if you’re awarded a portion, or all, of an ex-spouse’s retirement plan, it may not be money that’s readily available. Just the same as the owner of the policy must wait until they reach a certain age to withdraw retirement benefits, so must an ex-spouse who was awarded benefits in a divorce.
Regardless of the type of account, the process can be lengthy and an experienced family law attorney can help assist you in that process.
Authored by Ashley Roncevic, LegalMatch Legal Writer and Attorney at Law