How Retirement Accounts Are Divided in Oakland County Divorces
When you’re going through a divorce, there are plenty of things to figure out. You might argue about who gets the house, the family car, or even the dog. But what about the retirement account?
Many people have a 401(k), a pension through a longtime employer, IRAs, investment accounts, or other retirement savings. What happens to them? These accounts are now part of the divorce conversation.
For couples going through divorce, here is a look at how retirement accounts are divided in Oakland County so that you can prepare for your next step.
Is My Retirement Considered Marital Property?
In Michigan, retirement benefits earned during a marriage can be considered marital property. That can include benefits from:
- A 401(k) or 403(b)
- Pension
- 457 plan
- Any other qualified retirement plan
However, that doesn’t necessarily mean your spouse is entitled to half of everything you’ve ever saved.
When it comes to dividing these assets, the most important part is determining when the money was earned and how the account changed over time.
Divorce Doesn’t Always Mean a 50/50 Split
Many people believe that in a divorce, everything gets split 50/50. But that is not always the case for every state. Michigan follows equitable distribution. That means marital property should be divided fairly. But remember that fair does not automatically mean dividing every asset down the middle.
The circumstances of each marriage play a big role. That can affect how the overall marital estate is divided. Remember that you don’t have to split every individual asset equally to reach an equitable result.
For example, one spouse might keep more of the equity in the marital home while the other receives a larger share of certain retirement assets. The goal is to look at the bigger financial picture.
What Happens to a 401(k)?
A 401(k) is an easier retirement asset to divide because it has an identifiable account balance. However, dividing it still isn’t as easy as writing “half” on a piece of paper.
First, the parties need to determine what portion of the account is marital. Then they need to decide how that portion will be divided as part of the overall property settlement.
Sometimes the account itself is divided. Other times, the spouse who owns the account keeps it and gives the other spouse additional marital assets of comparable value.
And there’s another important consideration: you can’t always withdraw money from a 401(k) and hand half of it to your former spouse.
Depending on the retirement plan, a Qualified Domestic Relations Order may be needed to transfer a spouse’s share without treating the transaction like an ordinary withdrawal.
What About a Pension?
Pensions can make things more complicated. Unlike a 401(k), a pension may not have a nice, obvious account balance sitting on a statement. You might have paperwork providing a future monthly benefit based on years of service and compensation.
That can make finding out the marital portion and figuring out how to divide it more complicated. The value of that future benefit may represent a substantial portion of the couple’s marital wealth, even though neither spouse is receiving those retirement payments at the time.
Retirement Money Isn’t the Same as Cash
Two assets can have the same number attached to them without having the same practical value. For example, $200,000 in a retirement account is not always the equivalent to $200,000 in cash. Taxes, investment performance, withdrawal rules, and when the money will actually be available are important to know.
This is why retirement accounts shouldn’t be considered separately from everything else you’re dividing. Your marital home, bank accounts, investments, business interests, pensions, and retirement accounts all fit into the larger financial picture.
Think Beyond the Divorce Judgment
When you’re in the middle of a divorce, you might be focused on those immediate decisions. But retirement assets are different. They’re tied to a future you may not have spent much time thinking about.
Before agreeing to a property settlement, make sure you understand what you’re actually receiving, what you’re giving up, and how retirement assets fit into your long-term financial picture.
If you want to know how retirement accounts are divided in Oakland County, there is help. At the Law Office of Melissa M. Pearce, PLC, we can help you identify marital and separate retirement assets, evaluate how they fit into the property division, and address the documents necessary to complete a transfer. Reach out today for a consultation.