Retirement Accounts in a Divorce

Division of a Pension 401k or IRA in a Louisville Divorce

Kentucky and Louisville divorce cases often require the division of retirement or pension accounts.  How will pension and retirement accounts in a divorce be handled?  For many divorcing couples, the amount in their retirement plan or pension is their largest single asset aside from the equity in the family home.  Retirement accounts can include a pension, 401(k), defined benefit plan, IRAs, separate savings or securities, or an Employee Stock Ownership Program also known as an ESOP.

In a divorce, uncontested divorce or collaborative divorce all assets and liabilities of the couple must be accounted for and marital property must be divided.  This includes pensions, IRAs and 401(k) accounts.  While our Louisville divorce Courts has the authority to order the division of these assets, the administrator of the retirement pension or plan will require their own unique orders in a special format that meets the requirements of the individual 401(k), pension or other retirement asset management group.

Most providers of 401(k) plans have their own preferences and standard boilerplate paperwork known as a Qualified Domestic Relations Order or QDRO which must be properly customized for your unique circumstances.  This is required for the court to effectively distribute marital retirement assets.  A QDRO will be necessary for each of your 401(k) accounts.

The QDRO provides specific instructions as to how the 401(k), pension or retirement accounts in a divorce are to be divided, when this is to occur and where to send associated proceeds.  There are tax implications associated with distributions from a 401(k) or retirement account and these decisions must be made in context of property division as a whole.  The loss of the money required to pay taxes may encourage the parties to divide another asset or offset the value of the marital interest in the retirement account with another financial asset.

Division of a Pension or 401k

The general rule in Kentucky family law is pension benefits that constitute deferred compensation are marital property unless specifically excepted by law. If one spouse’s retirement is excepted from division, then the level of exception for the one with the greater pension will not exceed the level of exception allowed the other spouse.

Kentucky Teacher’s Pensions

Teachers’ pensions are another unique area of Kentucky law.  Many people still believe teacher retirement benefits are not divisible marital property.  This area of divorce law is quite complex.  In Kentucky, teacher retirement benefits are not divisible marital property, nor are they considered an “economic circumstance” in the division of assets.

However, the Kentucky Teachers Retirement System (TRS)  is now required to accept QDROs.  A recent Kentucky Supreme Court ruling (Shown v. Shown) addresses member’s retirement allowances are “potentially and conditionally subject to classification and division as marital property.”  Several years ago House Bill 289 was signed into law allows the retirement allowance or termination of a Kentucky teacher to be divided by the court between the member and an ex-spouse as the TRS issues payment.

Contact Experienced Louisville Divorce and Retirement Attorneys

Your divorce cannot be completed until all marital property such as retirement benefits are accounted for and appropriately divided.  Retirement account paperwork is quite complex, and must be properly formatted and accurate to ensure you receive the benefits ordered by the court in your case.

Are you concerned about your pension or retirement accounts in a divorce in Louisville or Central Kentucky?  We invite you to review the recommendations of our clients and contact us or call (502) 584-1108 to schedule an appointment with one of our experienced Louisville divorce lawyers.