Retirement Accounts, Pensions and Divorce
Many people are often under the misconception that their pensions and retirement funds are off limits when divorcing. That is typically not the case, because pension and retirement funds are divisible just like any other marital asset. A pension earned during marriage is generally considered to be a joint asset of both husband and wife. Arkansas strives to maintain fair and equitable division of marital property. In accordance with Aransas law, all retirement accounts are subject to a 50/50 split between the spouses, regardless of who earned them.
Whose name and who made more money in the marriage are mute points when dividing pension and retirement benefits. Generally, any amount deposited in a pension and/or retirement account during the marriage will most likely end up split, unless a prenuptial agreement was recorded that specifically names retirement funds and/or pensions as separate property. Division applies to:
- pension benefits during a marriage;
- retirement savings accounts that were funded during a marriage; and
- the earnings on these accounts that accumulated during the marriage.
A court order is necessary for someone to receive retirement funds and/or pensions. It must generally be done at the time of the divorce when the other marital assets are divided. The court order or court-approved settlement requiring a spouse to pay a former spouse retirement funds and/or a pension is called a domestic relations order.
In Arkansas, divisions of retirement accounts is typically handled through a Qualified Domestic Relations Order (QRDO). Since retirement accounts are held in only one person’s name, a QRDO establishes an additional named payee on the account per the U.S. Department of Labor. Note: A QRDO is only used for company-managed accounts like a 401(k) or 403(b). The Internal Revenue Service also uses QRDO’s to identify retirement assets that are legally allowed, and sometimes managed, to be used to pay child support or alimony. If you are ordered to split up a 401K or Roth IRA account, if a QRDO is in place, the IRS recognizes the early withdrawal as pursuant to a divorce decree. You will not incur additional fees, taxes or financial penalties for early withdrawal. However, the spouse receiving the money may be liable for taxes unless he or she appropriately reinvests it.
The only retirement accounts that are divided differently are Social Security and Tier 1 Railroad Retirement benefits. A divorced spouse may be entitled to a reduced Tier 1 spouse benefit if the marriage lasted ten consecutive years, both spouses have been 62 for at least a month and the divorced spouse is unmarried. If the spouse has not retired yet and still working at the railroad, the former spouse may receive a spouse annuity two years after the divorce if both spouses are 62 and the railroad spouse is fully insured through Social Security based on earnings. Since, the award is calculated based on Social Security pay, the divorced spouse’s annuity payments are less than what would be received if the couple had remained married. A court CANNOT award a divorcing spouse part of a Tier 1 Railroad benefit as part of a property settlement. The Railroad Retirement Board oversees the railroad retirement benefit system and federal laws regulate railroad benefit division in the divorce. Receiving Social Security retirement benefits depends on a number of stipulations like the receiving spouse must be unmarried, age 62 or older, the ex-spouse is entitled to Social Security retirement or disability benefits; and the benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouse’s work. There are many other stipulations and requirements when determining Social Security benefit rights.
As you can see, the division of retirement funds and pensions can be quite complex and costly if not handled properly. Aside from real estate, retirement plans are usually the largest asset in a marriage. That is why hiring a reputable, experienced attorney like Keven Hickey Law Partners can give you the peace of mind needed during this difficult process while insuring your interests are protected. We will conduct a complete investigation in an effort to identify all retirement accounts and other benefits. Additionally, we can help you manage your assets and protect them through the process. We will protect your interests and facilitate a smooth division of assets.