If you are going through a divorce, you may wonder how your retirement accounts will be affected. Retirement accounts are often one of the most valuable assets that Murfreesboro, Tennessee, couples have, and they can also be one of the most complicated to divide.
Equitable distribution
In Tennessee, retirement accounts are subject to equitable distribution, which means that they must be divided fairly. This does not mean equally, though. Equitable distribution takes into account several factors, such as the length of the marriage, the contributions of each spouse to the marital estate, each spouses’ needs and abilities and the tax implications.
Retirement accounts
However, not all retirement accounts are considered marital property. Only the portion of the retirement account that was funded or accrued during the marriage is subject to division. Any portion that was funded or accrued before the marriage or after the date of separation is considered separate property and belongs to the spouse who owns it.
To determine the marital and separate portions of a retirement account, a forensic accountant may be needed to perform a tracing analysis. This involves calculating the value of the account at the time of marriage and at the time of divorce, as well as the contributions and earnings that occurred during the marriage. The difference between the value at the time of divorce and the value at the time of marriage, plus any contributions made during the marriage, is the marital portion. The value at the time of marriage, plus any contributions made before or after the marriage, is separate.
Different types of accounts
There are different types of retirement accounts that may be involved in a divorce, such as pensions, 401(k)s, IRAs and government or military plans. Each type of account may have its own rules and regulations regarding how it can be divided and transferred. For example, some accounts may require a court order called a Qualified Domestic Relations Order to authorize a transfer of funds to a non-owner spouse. Other accounts may allow a direct rollover or a lump-sum distribution.
The takeaway
The division of retirement accounts can have significant financial implications for both spouses. It can affect their current and future income, tax liability and retirement security. Therefore, it is important to understand your rights and options regarding your retirement accounts.