What happens to my retirement account after I get a divorce? – When a party to a marriage is considering getting a divorce, there are a lot of things to consider. The hardest part is typically the emotional aspect of the ending of a marriage, but there are also careful considerations that should be planned for that are strictly financial. This includes making plans and provisions for how equitable distribution will be handled.
A part of equitable distribution that we often get questions about involves how to separate retirement accounts between the parties. In this blog we will discuss that. Like all of blogs this is intended to provide general information only and not intended as a substitute for the advice and counsel of a family law attorney.
**Please note that everything in the blog is based on North Carolina law only. Things might work differently in different states.
What is equitable distribution?
People often refer to “separation of property”, in North Carolina that is referred to as equitable distribution. We go into great detail with regard to the rules and the law regarding equitable distribution and divorce in a blog that you can read here. Some of the important aspects with regard to the specifics of equitable distribution that are important to this particular topic are as follows:
- An equitable distribution action must be filed before an absolute divorce is finalized
- The parties must give each other a full accounting of all of their assets when they are involved in an equitable distribution action
- How and when the property was obtained in relation to the marriage are very important.
Separating a retirement account
A retirement account is simply one of the classifications of assets in an equitable distribution action. What makes things a little bit more complicated are the tax consequences of liquidating a retirement account. For example:
- If a married couple has $100,000 in checking account at a commercial bank, and they are supposed to split that asset 50/50, they can simply liquidate the account and each walk away with $50,000, with no loss of value. However, if that same couple has $100,000 in a 401k there are severe tax consequences for liquidated that account and the parties will face a significant loss of value as a result.
Splitting your retirement accounts without the tax consequences
Rather than attempt to liquidate a retirement account the parties can obtain a Qualified Domestic Relations Order (QDRO) which would allow one former spouse to receive a portion of the other spouse’s retirement account with the same tax protections what would be available through the plan. This is available the court by following the proper procedures both regarding North Carolina law and the rules of the retirement account’s plan administrator.
Family law can be a very complicated topic. If you are in need of a family law attorney in Charlotte, North Carolina or the surrounding areas, contact us.