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Dividing Retirement Accounts During Divorce

Divorce in Georgia often involves splitting up marital assets through the process known as equitable distribution. Retirement accounts may be part of the assets that are subject to division. These accounts hold funds meant to provide for your future financial security, so it’s vital to have an understanding of how they are treated during the process. 

Here’s a breakdown of the different types of retirement accounts and the factors considered when dividing them in a divorce.

  1. Individual Retirement Accounts (IRAs) — These come in various forms. Traditional IRAs let you make tax-deductible contributions and but withdrawals are taxed upon retirement. Roth IRAs feature non-deductible contributions but boast tax-free withdrawals. SEP IRAs are for self-employed individuals, with similar tax treatment to traditional IRAs.
  2. Defined Contribution Plans (401(k)s) — These employer-sponsored plans allow employees to contribute a portion of their salary, sometimes matched by the employer. The contributions grow tax-deferred until withdrawal in retirement, which is then taxed as income.
  3. Defined-Benefit Pension Plans — These employment-based plans offer a set benefit amount in retirement based on a formula considering factors like salary and years of service. Unlike defined contribution plans, the employee typically doesn’t contribute directly to these plans.

Generally, retirement savings accumulated during the marriage are considered marital property and thus subject to equitable distribution. However, contributions made before the marriage can be considered separate property. The key is determining the growth in value of the account during the marriage. This growth, representing the combined contributions of both spouses, becomes the marital portion to be potentially divided.

There may be tax consequences in dividing 401(k)s and defined-benefit pensions, since withdrawals may be required. Any withdrawals made before retirement agree immediately subject to federal income tax and the owner is charged a 10 percent penalty. Obtaining a qualified domestic relations order (QDRO) can prevent this result. This court order instructs the plan administrator on how to split the benefits according to the divorce settlement. A QDRO ensures a tax-free, penalty-free transfer of the spouse’s awarded portion to a new retirement account.

If one spouse served long enough to qualify for a military pension, dividing it during divorce involves a different set of rules. The Uniformed Services Former Spouses Protection Act (USFSPA) governs how military pensions are treated and divided. This involves factors like the length of the marriage overlapping with the military service and the spouse’s characterization as a dependent during that time.

Dividing retirement accounts can be a complex process. An experienced divorce attorney can help you determine the marital portion of each account and facilitate the drafting of a QDRO if necessary. This ensures a fair and legally sound division that protects your future financial security.

The Law Office of S. Mark Mitchell, LLC in Newnan serves clients throughout Georgia in divorce and related matters, including division of marital assets. Contact me online or give my firm a call at 470-344-8550 for an initial consultation.