Who Gets the Retirement Account in a Divorce?
Asset division is one of the most common reasons for disputes during a divorce. If you want to make things a little easier, it’s helpful to understand how retirement accounts are divided during the process.
Are Retirement Accounts Joint or Separate Property?
During a divorce, the main question about any asset is whether it is personal property or marital property. If the retirement account is separate, personal property, then the original owner of it retains control. If the account is a marital asset, it and other types of joint property all have to be split up.
The basic rule for determining what counts as joint property is in part when the property was acquired. Accounts started after marriage are usually marital property. If the account was started before marriage but either spouse contributed money to the retirement account following marriage, a proportionate amount of the account becomes marital property.
A retirement account is usually only personal property if you quit adding funds once you got married. Some types of prenuptial arrangements can also mean that certain retirement accounts remain personal property regardless of whether money is contributed after marriage.
Different Types of Retirement Accounts Are Handled Differently
To figure out how to fairly split retirement accounts in a divorce, you need to pay close attention to the retirement account type. For a traditional IRA or 401(k), it is simple. There are some basic formulas your divorce lawyer can use to quickly estimate how much you contributed and how the property should be divided.
Things get more challenging with defined benefit plans like pensions. These involve an employer providing their employee with a certain amount of money at retirement, and the amount the employee gets is based on how long they work there. Since there is no way of knowing how long a person will continue to be an employee, your lawyer will have to just roughly estimate the value.
Strategies for Dividing Retirement Accounts Fairly
Whenever you are handling retirement accounts in divorce, it is a good idea to be flexible. For many couples, the simplest option is just agreeing that each party keeps all the funds of the retirement account in their name. However, this isn’t always a fair or possible option. Another common choice is offering a cash payment in exchange for complete control of an account. For defined benefit plans, the court along with the plan administrator will require a Qualified Domestic Relations Order. This allows the spouse who doesn’t own the plan to get a certain amount of the plan benefits.
It is also possible to divide the retirement account into two new retirement accounts that each contain a certain proportion of the funds. You could ask to retain control of a retirement account in exchange for other perks. For example, one spouse could take the retirement account while another takes the house. You could even negotiate a lower alimony payment in exchange for a retirement account.
How to Resolve Retirement Account Division Disputes
In an ideal world, you and your ex-partner would be able to quickly and easily find a mutually-satisfactory way to divide up retirement accounts. However, if you and your ex cannot come to a quick agreement on your own, your divorce lawyers can try negotiating. You can send offers and counter-offers to your ex that suggest different asset division strategies.
If this does not work, it might be time to get a neutral party involved. Many people are finding that a mediator can help settle disagreements in a mutually satisfactory way, or you can get a judge to divide the accounts in court. Though there is no guarantee that things will go in your favor, having a judge decide how to divide your retirement accounts can settle arguments once and for all.
Interested in learning more about retirement account division? The Law Office of Joanne Kleiner is here to help Montgomery County residents with their divorces. Call 215-886-1266 or send us a message to arrange a free consultation.