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. We are often asked:
“How are pensions and retirement plans handled in a Louisville divorce?”
“Will I continue to have access to my former spouse’s military benefits?”
“What is a QDRO?”
You’ve worked hard to build for your future and you are obviously concerned about the division of retirement accounts in a divorce in Louisville. You can entrust the protection of your assets and your case to a family which has served Louisville and surrounding communities since 1869. We invite you to contact Dodd & Dodd or call (502) 584-1108 to schedule an appointment or learn more about the division of pensions and retirement accounts in a divorce.
What is a QDRO?
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.
Military Benefits in a Louisville Divorce
Military divorces have to take into account many of the issues of a civilian divorce such as child custody issues, property and debt distribution as well as child and spousal and support issues. Those who serve in the military, or those who are spouses of active or retired military personnel are also very concerned with the division of their military retirement benefits.
The USFSPA (Uniformed Services Former Spouses’ Protection Act) provides that the spouse of a service member or non-military spouse may receive up to 50% of the retirement benefits of the active military or retired military spouse. There are specific guidelines which establish the division of retirement benefits such as number of years the parties were married, as well as the start of the retirement benefits in relationship to the effective date of the marriage and its ending.
There are many misconceptions around the division of military retirement benefits, including the length of the marriage. For example, the USFSPA’s “10/10” rule basically states that the military will pay the non-military spouse the retirement benefit directly if the marriage exceeded 10 years. However, State courts have jurisdiction over military retirement and routinely order the division of these benefits.
However, in many cases the service person is required to make payments directly to the ex-spouse. Under the USFSPA’s “20/20/20” and “20/20/15” rules (based in part of 20 years of marriage) the former spouse of military personnel may qualify for military health care and PX privileges after the end of the marriage. The rules can be complex, and the interest of both parties can be substantial. It is important to seek competent advise from our proven and experienced Louisville military divorce attorneys.
Division of a Pension
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.