Divorces can be tricky. They split up families and assets. If you have retirement accounts or are going through a gray divorce, you may have concerns about having enough money as you get older.
In a divorce, accounts such as IRAs and 401(k)s are owned individually. Your spouse is not listed on the account. Does this mean that you can keep everything in the account in the event of a divorce?
Not exactly. Under Michigan law, all retirement accounts are divisible in a divorce. The reasoning for this is that all income and property acquired during the marriage is considered marital property. This means that the assets are subject to division in divorce. In terms of retirement accounts, it does not matter how they are titled. They can be in one spouse’s name or both spouses’ names. The account will be divided equally in a divorce unless the spouses come up with other arrangements. For example, a spouse may offer other assets instead of splitting the account.
However, only the marital portion is typically split. Let’s say that you had $100,000 in your retirement account before you got married. When you divorced, you had $600,000. That $500,000 difference would typically be split between you and your spouse. The original $100,000 would typically remain yours since that would be considered premarital assets.
Getting a QDRO
To split certain retirement accounts, you will need a qualified domestic relations order (QDRO). You do not need one to divide IRAs, deferred annuities, or government retirement plans. You will, however, need a QDRO if you are trying to divide a qualified plan such as a 401(k), 403(b), or 457 plans.
The reason why a QDRO is required is because retirement benefits are protected under federal law. They can only be divided if there is a QDRO in place. A divorce decree is not enough.
The QDRO will allow the plan administrator to set up two separate pension funds. The participant can contribute to their own pension fund after the divorce. Any retirement plan rollover will be done tax-free, and the participant will not have to start paying taxes on any of the money until they start taking distributions from it.
However, if the participant withdraws the money in cash, they will have to pay income tax on that amount. The good news is that they will be exempt from the usual 10% tax, which is imposed on those younger than age 59½.
Contact Us Today
Even though your 401(k), pension, or other retirement account may be in your name only, it is still subject to split in a divorce. Make sure you understand the guidelines involved so you are not taken by surprise.
The Law Offices of Michael A. Robbins has more than 30 years of experience handling divorce and family law cases throughout Michigan. We will protect your legal and financial interests. To schedule a consultation, fill out the online form or call (248) 646-7980.