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How are retirement benefits divided in a divorce case?

On Behalf of | Jan 19, 2021 | Firm News

Alabama law requires an equitable distribution of property when couples divorce. Most people focus their attention on the assets they can see and touch. While it’s important to determine who should get the house or the car, you also need to consider intangible assets, including retirement benefits and pension plans.

Factors used to determine how retirement accounts should be divided

Above, we mentioned the “equitable distribution of property.” Many people think that “equitable” means the same thing as “equal.” This is not the case. Equitable refers to a fair division of assets. In some cases, this may mean a straight 50-50 split. Most divorce cases are rarely so simple. As such, when it comes to dividing retirement accounts, a court may consider several factors when making a decision, including:

  • How long you were married
  • Both monetary and non-monetary contributions to the marriage
  • Each party’s future income prospects
  • If children are involved, who will be responsible for the primary care

Until a few years ago, Alabama law only allowed for the division of retirement benefits if a couple had been married for 10 years or longer. In addition, the law only allowed for the division of benefits that had accrued during the marriage. Length of marriage and a spouse’s contribution to the account are no longer the determining factors for division. The court may consider all of the circumstances surrounding your situation.

A QDRO may be necessary to divide benefits

There are significant tax penalties if you withdraw from your retirement accounts before you’ve retired. This poses an obvious problem if you’re trying to divide these proceeds. Enter the qualified domestic relations order or QDRO. This enables you to divide benefits without taking a tax hit.

In some cases, you might not have to split a retirement account at all. You could offer additional assets to your ex to help meet the value of your benefits, enabling you to hold onto your future income. A skilled legal professional can help inform you of all available options.