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Michigan Family Law Blog

Wednesday, August 7, 2019

How Do Retirement Funds or Pensions Get Split in a Divorce?

When a person gets divorced in Michigan there are often many issues that may include alimony, child custody, parenting time and child support but almost every case requires a division of property and debt.  When dividing property; the court will first determine whether the property is marital or separate.  Marital property will be subject to a roughly equal division, while separate property will remain the sole property of the spouse that owns the separate property.  Classification of property can be confusing. A Michigan divorce lawyer can explain your legal rights and your options for obtaining a divorce.

Is My 401(k) or IRA My Separate Property?

In most cases, determination of whether a retirement account or asset is considered separate or marital will depend on whether you were married to your spouse at the time you contributed money to these accounts.  The fact that the account may be held in only one person's name or even in the name of a third person may not make any difference.  For the most part, if you were married during the time that you contributed to the account, that account will be considered marital and subject to roughly equal division of that asset.  There are exceptions and sometimes initial contributions or premarital balances can be excluded.

 

Do I Have to Pay Taxes When We Divide the Retirement Account?


No, when the parties are divorced the attorneys will prepare a qualified domestic relations order (QDRO) that will be sent to the IRA or 401(k) plan administrator The QDRO will instruct the administrator to: (1) open a second account for the other spouse, (2) transfer the appropriate amount of funds into the other spouse's new account and (3) segregate the accounts so that withdraws or deposits into one will not affect the other.  Then taxes are only paid at the time that the spouse withdraws the funds from this new account, hopefully when that spouse hits the appropriate age to avoid penalties and maximize the tax benefits.  With a pension, it is the same idea, except each spouse will now have his or her own pension through the plan as if both were employed by the company that provided the pension (although each person will only receive half of the monthly payment rather than one spouse receiving 100%).


Contact a Michigan Divorce Attorney for More Information

Determining whether the retirement funds are marital or separate property and dividing them appropriately can be very complicated for people that do not handle these transactions on a daily basis. The first step is to consult with an experienced Michigan divorce attorney to learn about your legal rights and how to protect your best interest and the best interests of your children during a divorce proceeding. Contact Michigan divorce attorney Cameron C. Goulding to discuss your options. 

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