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When considering a divorce sometimes the mind races with questions, it can be hard to sleep.  The questions range from custody (if you have children), to your home and your ability to retire after a divorce.  This blog is written to broadly address the issue of how retirement type accounts or qualified plans are handled in a divorce.  If you have specific questions regarding your own circumstances, please contact us by clinking this link or by calling us at (248) 608-4123 to schedule a consultation.

Do Retirement Plans Get Divided in a Divorce in Michigan?

The short answer is yes, qualified retirement plans typically get divided along with the other property in a divorce regardless of whom may have "earned' the money in the account or in whose name the account may be.  Retirement plans, including 401(k)s, IRAs, 403bs, pensions and almost all other types of these tax qualified plans are subject to division in a divorce. 

Typically the court will divide what is referred to as the "marital portion" of the account.  The marital portion is typically defined as the increase in value of the account from the date of the marriage to the date the divorce judgment is signed by the judge and the spouses are divorced.  The value of the account on the date of the marriage is typically considered the "separate property" of the account holder and that spouse is awarded 100% of that premarital value.  The rest of the account will typically be divided equally between the parties. 

If the parties both have retirement accounts, typically the judgment will "equalize" the marital portions of the plans.  For instance, if Alice and Ben get divorced and Alice has a 401(k) with a balance of $400,000, Ben has a 401(k) with a balance of $300,000 and the entire balance of both accounts are marital, then Alice would essentially rollover $50,000 to a 401(k) in Ben's name so that each of them now has $350,000 in 401(k) funds.  If neither party withdraws any funds from the 401(k) other than the above described transfer, there are no penalties or tax consequences.

With pensions, again the court will essentially divide the marital portion in a relatively equal fashion.  The court and the pension plan administrator will require a "qualified domestic relations order" or QDRO to be prepared once the parties divorce judgement has been signed and entered into the record by the judge.  The QDRO must be signed by the judge and qualified by the plan administrator, then the plan administrator will essentially set-up an account for the non-participant that mirrors the participant's.  So for example, if Ben was entitled to a pension from his job as a teacher where the marital portion of that benefit would pay him $1,000 dollars per month when he reaches the necessary age to receive the benefits, then the plan administrator will set-up another account for Alice which will treat her as though she earned half of that benefit.  The plan administrator would then pay each spouse $500.00 per month when they reach the appropriate age.  If Ben continues to work and earn additional benefits, those benefits would accumulate only in Ben's account and none of the post-divorce earning would be attributed to Alice's account.

If you are considering a divorce or are concerned that your spouse may be considering a divorce, please do not hesitate to schedule a consultation by clicking this link or calling (248) 608-4123.