You likely have worked hard to amass retirement assets with a view to a life of comfort and leisure after leaving the workforce. When a marriage breaks down financial security in retirement is often a real concern. This is true regardless if your retirement is in the distant future or right around the corner. In a marital property state, like Wisconsin, retirement accounts are divisible in divorce. For many individuals in their fifties and sixties, assets in a retirement plan are substantial. Understanding how your retirement will be divided in divorce can be a complicated process and accordingly, it is critical to understand how retirement assets are treated in a divorce.
Defined Contribution Plans vs. Defined Benefit Plans
In general, there are two types of retirement plans: defined contribution plans and defined benefit plans. Common forms of defined contribution plans include such vehicles as IRAs and 401(k) plans. Defined benefit plans are usually referred to as pensions.
Retirement assets are treated as marital property. However, each household and each divorce is unique. Retirement plans also differ in how assets are distributed at the time of retirement. Many defined contribution plans are distributed as a lump sum or are available to withdraw in any sum at a certain age. In some cases, those monies are available at any time but with tax consequences. Pension plan are frequently dispersed on a monthly or annual basis. It is critical to work with a thorough and knowledgeable professional to avoid unintended consequences when dividing marital property in a divorce.
With knowledge of the type of retirement account and how it will be distributed, it is possible to calculate the current value of the retirement assets. Often experts are hired to assist with valuing retirement plans like pensions. Experts are often helpful too in understanding the retirement plan’s rules to divide the plan pursuant to a divorce. This information is necessary when you decide how to deal with the retirement assets which might include an outright division or using an offset method to transfer the value of assets in an overall division of property.
Dividing the retirement account directly requires additional work post-divorce with the assistance of experts and your attorney. Your family law attorney
can assist you through the process of drafting a Domestic Relations Order (QDRO) that complies with the retirement plan administrator’s policies and rules. The QDRO must be submitted to the plan, and when accepted, it becomes a Qualified Domestic Relations Order that is enforceable and the account is then divided. The division occurs at the time of divorce as a non-taxable event.
Social Security Benefits May Be Available
In longer marriages, Social Security benefits may be an issue to consider. When an ex-spouse is 62 or older and is not married, some individuals may qualify for Social Security retirement benefits on their ex- spouse’s earnings record. The recipient must otherwise be eligible for the government benefits and the marriage must have lasted 10 years or longer and cannot be remarried to someone else. If you qualify, your lawyer can guide you through the process of seeking spousal benefits from the Social Security administration. These benefits, however, are not able to be divided by a Qualified Domestic Relations Order as can a retirement pension plan.
Dividing property in divorce requires meticulous attention to detail. If you are considering filing for divorce, it is important to contact an experienced family law attorney who can guide you through the steps and protect your rights. Call us at 414-939-0529 to schedule a free initial consultation to discuss your case.