The process of divorce is not only emotionally exhausting and stressful, but dividing assets can be more challenging than many couples are prepared for. They are prepared to divide joint bank accounts and co-owned property but often feel like the division of retirement accounts shouldn’t even be up for debate. In other words, what’s mine is mine, what’s yours is yours, let’s head off our separate ways. However, the asset division process for retirement accounts isn’t always so simple. Retirement accounts have been acquired over time, which means they can be considered separate and joint property. They have different values at different times, and there are tax consequences to liquifying these assets. When dividing retirement accounts during the divorce process, Ohio courts will consider many other factors before determining equitable distribution.
Ohio divides marital assets during the divorce process through equitable distribution. This means that the asset division will be what the court believes is fair to both spouses, even if it is not necessarily even. Marital property is typically anything acquired by both spouses together or separately during the marriage, while separate property is usually only property one spouse owned before the marriage. Retirement accounts, even those that were started before the marriage, are typically considered marital property because they were contributed to during the marriage. Because retirement accounts are marital property, they will be divided during the asset division process although pre-marriage contributions may be excluded.
Different retirement accounts may be treated differently. The Employee Retirement Income Security Act protects any account provided by an employer. ERISA will govern the division of any employer-provided retirement benefits. Other retirement accounts are set up privately and will be treated as traditional financial accounts without requiring any special governance. These are the most common retirement plans most couples will need to divide.
An IRA is an individual plan not sponsored by an employer and is usually shared by both spouses. Therefore, in most cases, an IRA will be divided equitably. A financial professional will help the spouses agree on the value of the IRA.
A pension is employer-sponsored but is a defined benefit plan, meaning that the payout during retirement will be a fixed amount, making the value more straightforward to calculate during the divorce process.
These plans are employer-provided but considered defined contribution plans rather than benefit plans. The amount both the employer and the employee contribute monthly is consistent. Still, the payout from the plan is variable, and therefore, the ultimate value of the plan may not be known at the time of divorce. Financial professionals can help determine the value of these plans so they can be equitably divided.
Any plan that needs to be divided according to ERISA (pensions, ESOPs, and 401(k)/403(b) plans) needs a Qualified Domestic Relations Order for the division. This is because a divorce, a private legal matter, cannot govern the actions of a third party, which in this case is the administrator of an employer-sponsored retirement plan. Therefore, the divorce decree cannot divide these retirement assets. The couple will have their attorneys or a professional QDRO preparer draft an order specifying how these accounts will be divided and paid out. This draft will be reviewed by the couple, the retirement plan administrator, and then a judge. When the account is divided, the spouse not employed by the provider will need to roll the funds to another plan for defined contribution plans or have a plan in place for pension payouts. This process can take months, and neither spouse may have access to the plans. Because of this complexity, both spouses must have an attorney who understands the intricacies of the process.
Equitable distribution can be complicated, as it is generally understood that both spouses were planning for retirement together, even if a plan is only in one spouse’s name. A judge will look at the whole financial picture, decide what a fair split should look like and consider all the factors. Some factors considered will be account growth during the marriage, if one spouse took time away from a career to care for a family, and how close the couple is to retirement age. Many attorneys will encourage clients going through the process to work with a mediator to determine the best way to divide these accounts that both spouses can agree is fair, rather than leaving it to a judge to decide.
Regardless of whether you are working with a mediator on asset division, you need help from financial professionals to make wise decisions when dividing retirement accounts. Liquidating, transferring, or dividing accounts often comes with significant tax implications, and a good financial professional can advise you on how best to divide these assets without losing your savings and putting your retirement security at risk.
Dividing retirement accounts may not be simple, but with the right team helping you through the process, you can protect your financial future during your divorce. You must have an attorney who is experienced in dividing retirement accounts and understands QDRO’s roles in the process.
Dividing retirement accounts during a divorce requires careful planning and experienced legal guidance. Attorney Michael E. Bryant can help you navigate the complexities of equitable distribution and protect your financial interests. Contact our office today to schedule a confidential consultation.