Major issues in divorce cases include division of property and debts between the spouses, according to Cornell University Law School. Included within the assets of parties to divorce proceedings are any retirement plans in force. As you contemplate the prospect of a divorce case, understanding your property rights is crucial, including your retirement rights.
Types
Depending on the state you live in, one of two different property division standards is used by the court in your divorce case, according to "The Complete Divorce Handbook: A Practical Guide" by Brette McWhorter Sember. The community property standard requires an equal division of the assets and debts of the marriage between the spouses. The equitable division standard requires a fair division of assets and debts, depending on the facts of the case.
Marital Assets
Only marital assets are subject to division between the parties, according to the American Bar Association Section of Family Law. Each spouse has a right to a share of all marital assets. Money contributed into a retirement plan during the course of the marriage by a spouse, as well as any employer's contribution, is considered to be a marital asset. Each spouse is entitled to a share of the other spouse's retirement plan. Unless each retirement plan received an essentially equal amount of money during the term of the marriage, merely letting each spouse walk away with that spouse's plan likely is not an appropriate division.
Qualified Domestic Relations Order
Liquidating a retirement plan to divide the proceeds between the spouses at the time of a divorce likely is not a wise decision, according to Sember. Taxes and penalties eat away at the principle funds contained in the plan. Therefore, the common procedure in divorce is for the court to issue a qualified domestic relations order. This decree requires the payment of a predetermined share of the proceeds from a retirement plan to the party who is not the named owner of the account at a future date. These proportional payments occur upon the retirement of the account owner, a procedure which avoid a loss of funds through an early withdrawal.
Misconceptions
The most common misconception associated with retirement rights is that spouses are wholly entitled to their individual retirement plans. The misplaced theory is that because an individual spouse earned the contributions in the retirement account, these funds belong exclusively to that spouse. In fact, these contributions constitute marital assets, just as wages do.
Expert Assistance
Resolving issues associated with retirement rights requires an understanding of complicated legal provisions and court procedures. Consequently, consider retaining an attorney to assist you with this issue, if not for your entire divorce case. The American Bar Association maintains a variety of essential resources to assist you in finding a lawyer.
References
- Cornell University Law School: Divorce Overview
- "The Complete Divorce Handbook: A Practical Guide"; Brette McWhorter Sember; 2009
- American Bar Association: Section of Family Law
