• When You get a Divorce, What Happens to Your 401(K) Plans and Retirement Funds?
  • July 24, 2015
  • Law Firm: Rechel Associates P.A. - Tampa Office
  • This only applies to any funds that were accrued between the date when you got married and the date when the petition for dissolution was filed. Anything that was accrued before you got married or after the filing of the petition for dissolution is considered to be non-marital and therefore exempt from the division of assets.

    The 50/50 is applied is your case goes to court. There are quite a few people who are against the idea of having their pension divided in this way and will try to negotiate around this division by coming to an agreement about a variant of the division with their partner before the petition is filed or in the case of a successful mediation. If you and your spouse can agree to another way to split your assets, the court will not impose this division.

    Keep in mind that just getting to keep the retirement funds is probably not going to be agreed upon if you have no other assets to negotiate with. Look at it this way: if you have a nest egg of $400,000 that was all earned while you were married, but not anything else that is of value, then the chances are good that your partner will not agree to you retaining all of it and the courts will agree with them. To put it plainly, have reasonable expectations.

    The total value of your retirement savings/plans and the distribution of them is a topic that can be emotional and sensitive. If you don’t understand or want to accept this policy, then you are not alone. Many cases go through unnecessary litigation simply because they wanted to be obstinate about it or they couldn’t understand why something they had worked hard for had to go to their soon to be former spouse.

    To put it simply, here is the idea why these retirement plans are divisible. While you were busy working and then saving part of your hard earned money for retirement, you were likely doing it either:

    • With your spouse helping by taking up the slack in other areas such as in the home by staying at home so there was no need to pay for daycare or a sitter, or financially by taking care of other marital expenses out of their own paycheck.
    • Or
    • The funds were accrued with the intention of it benefitting both of you and if you were not getting divorced, it would have. Subsequently, your spouse may not have made a retirement plan or may not have saved sufficiently because you were doing it.
    Another issue that often gets questioned is how these funds are to be divided. This will mostly depend on the Plan Administrators. Sometimes the benefits are able to be transferred all together in a lump sum. In this case, once the assets have been divided, the funds can immediately be transferred once the final judgement has been declared. Most of the time though, the funds will not be available until the person who saved the funds has retired and can access them too.

    Both of these methods will require a QDRO - Qualified Domestic Relations Order. See, the final judgement by itself is not enough for this division to be self-executable. Also, in many instances, these QDROs have to be approved by your Plan Administrator before any type of payment can be processed. We are now seeing older cases where the QDRO orders are no longer sufficient due to technical errors or some sort of math formula being off. In order to fix this, the final judgment or the QDRO needs to be amended with the information that is relevant. It needs to be clarified.

    If you happen to be the entitled spouse or even the beneficiary spouse and you are looking to get a lump sum payout, it is important to remember that unless the funds are transferred from one plan to the other directly as per the QDRO, there will be fees and taxes associated with the transfers. Additionally, if this agreement has been made in lieu of a QDRO, then the owner of the assets who makes the withdrawal and pays the other spouse directly must first have an agreement with the other spouse as to who will be responsible for the penalties and taxes that will go along with the transaction.