Will you be getting a divorce from your spouse, and wondering what will happen to your retirement accounts? If so, you may not realize that it is considered marital property and will be divided during a divorce. Here are a few things that you need to know about this unique asset that needs to be divided.
Are All Retirement Accounts Considered Marital Property?
Be aware that all of your retirement accounts are not considered marital property. If you had a 401(k) from a previous job before you were married, that account would belong to you and be considered separate property. Any 401(k) you received after getting married would be considered marital property and need to be divided.
However, it is much more common for someone to have a retirement account that was started before they became married and now have commingled assets. For instance, you may have a Roth account that you have been funding for a long time, and there was money in it from before the marriage. The account then will need to be divided using equitable distribution to determine what part of the retirement account is individual property and what is marital property.
What Is Equitable Distribution?
Equitable distribution rules are used to define what is considered a fair way to split up a retirement account in a divorce, not necessarily what is equal and down to the penny. There is not necessarily a formula that will be used, since it is a decision that will be made by a judge.
For example, imagine that you have a Roth account that you maxed out every year for 5 years prior to the marriage, and then got divorced after 10 years of marriage. A judge may determine that ⅓ of that Roth account is individual property from before the marriage, and the remaining ⅔ would be split in half between both spouses. The judge may not necessarily factor in that the money invested earlier generated more money in the account through investments, and just spit it in a way that they thought was fair. Of course, every retirement account is not as straightforward as this example.
How Would A Pension Be Divided?
Much like retirement accounts, pensions can be divided in the same way using equitable distribution. If your spouse started earning their pension during 15 years of your marriage, you got a divorce, and then they worked 15 more years at that same job until they reached retirement, it's possible that a judge will make a decision that will divide the future payout of that pension based on what is fair. Half of it may be split between the spouses, while half may be considered an individual asset. This would result in receiving about 25% of the pension if the judge ruled in this manner.
For more information, contact a company like Gomez May LLP.
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