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What Happens to Your Retirement Account During a Divorce?

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By starting to save early, many people can develop a substantial retirement asset pool that enables them to be financially secure and lead a comfortable lifestyle in their later years. In general, retirement accounts are a significant asset for married couples as they age.

Thus, if a couple decides to get divorced, both parties should pay special attention to the division of their retirement assets. A skilled family law attorney in Kentucky can make sure that your retirement asset pool is divided in a fair and just manner during divorce proceedings to allow you to continue to lead a financially secure life.

Division of Retirement Benefits

All marital property will be divided equitably, not equally, between divorcing couples in Kentucky. Marital property may include pensions and other retirement benefits, whether accrued or vested during the marriage. Marital property for divorcing spouse may include the following in Kentucky:

  • 401(k) and 403 plans
  • Defined benefit plans
  • IRAs
  • Keoghs
  • ERISA funds
  • Defined contribution plans
  • Military pensions
  • Employee Stock Option Plans (ESOPs)
  • Veteran’s educational benefits

However, in KY social security payments, workers’ compensation disability payments, and military injury compensation are not included in marital property.

Negotiating with your ex-spouse through a seasoned Kentucky property division divorce attorney will be your best bet for the settlement of your retirement accounts. If a mutual agreement on the division of retirement assets is not possible, then the court will undertake the division using its own discretion.

Two Classifications of Retirement Benefits

While retirement benefits differ vastly, they can usually be classified into two groups:

Defined Contribution Plans

These plans involve a defined amount of money that belongs to the employee. The employee and/or employer need to make defined contributions. The plan’s balance is continually changing, but its value can be defined at any point in time. This category includes 401(k)s, 403(b)s, and profit-sharing plans.

Defined Benefit Plans

Defined benefit plans are those where an employer undertakes to pay a benefit to an employee in the future based on some type of formula. In general, this formula is based on the employee’s salary near the end of their career and the number of years they have worked with the employer before retiring. These plans are typically more complicated to value and warrant an actuary’s professional assessment to determine accurate values.

If spouses share in each other pension or retirement plan in Kentucky, it is mandatory to complete a Qualified Domestic Relations Order.

Division of Retirement Benefits via QDRO

A Qualified Domestic Relations Order (QDRO) refers to a special court order, which will be necessary for the division of pensions and some other kinds of retirement funds. Irrespective of whether both parties arrive at a settlement through a court trial or negotiation, this order is required. The involvement of a third-party administrator gives rise to the need for this order.

Your pension plan administrator will distribute your payments based on your plan’s terms, and they cannot direct these payments to an ex-spouse until a QDRO has been acquired. In some types of retirement plans, you may need to “join” the plan as a divorcing partner to be able to obtain a QDRO.

To navigate this complex process, it is best to work with a skilled divorce attorney.

Avoiding Retirement Assets Division

Sometimes the divorcing spouses may choose a fairly straightforward solution for the division of property, which completely avoids the division of retirement assets. For instance, if your marital residential property is worth around $500,000 and your retirement accounts amount to nearly the same, you could agree to hold on to the retirement assets. At the same time, the other party gets the marital home.

In this case, there will be no need to sell the property and divide the proceeds while dividing retirement benefits through complicated QDRO and other requirements. A distressed home sale may not get you the best market price, and dividing retirement assets would cause further delays in finalizing your divorce case.

However, before considering these alternatives, you need to evaluate your financial position and long-term monetary needs. The sale of the house will get you immediate funds while you cannot access retirement accounts immediately without paying taxes and penalties. For the best advice on managing your financial situation, your KY family law attorney can recommend a trustworthy financial planner.

Seasoned Kentucky Family Law Attorneys with Decades of Collective Experience

The experienced family law attorneys at the offices of John H. Ruby & Associates have countless years of experience helping Kentucky’s divorcing couples with the division of their retirement benefits. We are well aware of the complexities associated with cases involving the division of property.

Our skilled legal team will offer solid legal counsel on the equitable distribution as well as ensure that your interests in a property division are entirely protected. For a detailed case review with a knowledgeable family law attorney, call today at (502) 895-2626.