When going through a divorce in North Carolina, one of the most common questions people have is “what will happen to my retirement accounts?” Tangible items such as cars and personal belongings are typically easier to divide because what is “marital” or “separate” property typically depends on when that property was obtained. Retirement accounts, however, can be part marital and part separate, depending on how long your retirement account has been in effect and what kind of account you have.
Usually with a vested retirement or pension account, half of the value of the account that accrued during your marriage will belong to your spouse. Family law attorneys in North Carolina use a coverture fraction for situations in which a retirement plan has been in existence during a marriage. For example, suppose you and your spouse were married for a total of ten years during which you participated in your 401(k) and you had already participated in your 401(k) for five years before the marriage. The numerator in your coverture fraction would be the number of married years during which the account was growing (ten) and the denominator would be the total number of years the account has been growing (fifteen). This fraction would determine the portion of the retirement account that is considered marital and should be split equitably between each spouse (usually half and half).
The most common way that retirement plans like 401(k) accounts are split is with a Qualified Domestic Relations Order (QDRO). A QDRO is an order of the court which directs a plan administrator to remove the necessary amount from one pension or retirement account into the account of that person’s spouse. A QDRO is a great option for anyone who needs to divide a retirement fund because it does not yield tax penalties to either party.
An alternative to the QDRO that may be appropriate for you is a lump sum amount payable to the spouse entitled to a portion of the retirement account for that value. Therefore, if the spouse entitled to a portion of a retirement account is entitled to $25,000, the spouse can just transfer that amount to her or an asset that is valued at the same.
If you have a retirement account and you are in the process of getting separated or divorced, contact Montgomery Family Law to obtain advice from experienced North Carolina family law attorneys. To set up an initial consultation, call (919) 348-2317.