Because of the financial value they hold and the potential future income they represent, retirement accounts are one of the important assets parties keep a close eye on during divorce property division.
However, dividing retirement accounts is often overwhelming since it depends on several factors, such as the applicable state laws, the type of accounts involved and whether there are premarital agreements on the matter.
How the state law affects the division
Every state follows a different rule when dividing marital assets. In Alabama, courts divide marital properties, including retirement accounts, fairly and equitably. While this can mean a 50/50 split, it does not necessarily have to be. The courts will consider several factors, such as the marriage length, the parties’ age and health and their earning capacity and potential.
However, if there is a valid prenuptial or postnuptial agreement addressing the division of retirement accounts in case of a divorce, then the court shall enforce that instead.
How the type of account affects the division
Defined contribution plans, such as 401(k)s and IRAs, are usually split following the terms of a court-issued document called Qualified Domestic Relations Order (QDRO).
Pensions, on the other hand, may be more difficult to divide since they provide benefits in the future. There are different ways to divide them, but the most common ones are divided monthly payouts or buyouts.
You are not alone in this process
It is crucial to get legal and financial advice when dealing with the division of retirement accounts in a divorce. If you have doubts about your situation, you can consult with a professional to understand your options and potential tax implications.