When going through a divorce, you might set your focus on child custody, who gets the home, and how to divide family heirlooms and possessions. While those are all important decisions that need to be made during a divorce, many couples forget about their retirement accounts. However, dividing retirement accounts appropriately is an important step during any divorce.
An equitable division of property is essential to both parties who may be approaching their retirement years. Investment and retirement accounts can account for a significant portion of marital assets. Thus, couples must split the value of those assets very carefully.
The state of Georgia is an equitable distribution state, as opposed to a community property state. In community property states, all the assets of a couple are divided equally, right down the middle. Equitable distribution states seek to divide the assets fairly, although not necessarily exactly equally. While all property acquired during the marriage is subject to this equitable distribution, separate property is not. When considering retirement accounts, contributions made to the retirement account before the marriage remain the sole property of the account owner.
Contributions made after the marriage are subject to the laws of equitable distribution. These retirement accounts could include IRA accounts, military retirement accounts, pensions, 401(k), 403(b), and 457 accounts. Permanent life insurance or annuities can also be considered retirement accounts to be divided, along with Federal Survivor Benefit Plan annuities or unvested retirement benefits. If the marriage lasted longer than ten years, Social Security can be considered a retirement benefit as well.
What is a QDRO?
Dividing a retirement account is not so straightforward since tax consequences come into play. When money is taken from a retirement account before retirement, there are often penalties and income tax payments necessary. One way a couple can avoid these early-withdrawal penalties is through what is known as a QDRO, or Qualified Domestic Relations Order. A QDRO is separate and distinct from the Final Judgment and Decree of Divorce and requires an attorney with experience in QDROs.
When a QDRO is implemented, a portion of the retirement account is assigned to a former spouse. QDROs can be both technical and complex. The settlement agreement incorporating a QDRO must be approved by the court, and a specific allocation method must be included that determines the number of payments, along with the amount of time those payments will continue. QDROs can be applied to any retirement plan sponsored by (most) private employers.
Another issue making the division of retirement accounts so complex is that the dollar amount of a retirement account can significantly change between the time of the agreement and prior to when the QDRO is filed.
As an example, suppose the retirement account is valued at $150,000 at the time the QDRO agreement is made by the couple, and it is agreed that $150,000 will be split equally, with $75,000 going to each spouse. Then, during the months that it takes to complete the divorce, suppose the value of the retirement account drops to $90,000. If one spouse received $75,000, the account would not be divided equally.
Factors Used in Determining How a Retirement Account is Divided During a Georgia Divorce
When determining how a Georgia retirement account could be divided during a divorce, the court will take many different factors under consideration, such as:
- What contributions were made by the spouse who did not earn the retirement benefits
- How many years the contributions were made during the marriage
- The degree to which the spouse who did not earn the retirement benefits had expectations of relying on those future benefits for support
In some instances, the court may allow the spouse who earned the retirement account to keep it entirely in return for giving another asset to the other spouse. As an example, the spouse who earned the retirement account worth $150,000 might be allowed to keep that account in return for his or her half interest in the marital home.
If there were no other significant marital assets to divide, then the marital portion of the retirement account might be divided between the spouses—i.e., the spouse who earned the benefits might be awarded 70 percent of those benefits, while the other spouse was awarded 30 percent of the benefits. IRAs are the simplest to divide during a divorce, while 401(k) plans, profit-sharing plans, and deferred compensation plans can be more complex.
Call Our Experienced Atlanta Family Law Attorneys
At Hobson & Hobson, P.C., our Atlanta divorce attorneys know the issues that arise during most divorces. We work quickly to help ensure that our clients are treated fairly throughout the process. We want to protect your future and your retirement accounts.
If you are considering a divorce or have questions regarding your specific case, call us today at (770) 284-6153 or fill out our confidential contact form. We can set up a consultation, so you can review all your legal options.
Attorney Sarah Hobson at Hobson and Hobson, P.C. are powerful advocates for those who fight for better futures for those going through divorce and custody law matters.
