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What to know about dividing retirement plans

On Behalf of | Apr 7, 2021 | Divorce

In Alabama, retirement plans are typically treated as marital property. When a couple gets divorced, retirement accounts may be divided. However, how you and your spouse divide the accounts may have significant impact on the value to each party. There are some important things to know about dividing retirement plans.

A retirement account must be divided in the judgment of divorce

In order to be divisible, a retirement account must be listed in the judgment of divorce. Even if one party alone has their name on the account, if they earn all or a portion of the account during the marriage, it may be marital property. The judgment of divorce itself must identify the account and explain how to divide it.

There are different ways to value a judgment of divorce

When dividing retirement plans in divorce, there are a number of ways that the parties can value an account. How you divide it may depend on the type of account. For example, a 401(k) may be divided by a flat amount to be given to another party. It may also be a percent of the value on a certain day. A pension fund may be divided by a dollar amount or months of service credit. There may be questions about survivor benefits that the parties should clarify in the divorce judgment.

How you divide the account can impact taxes

How you divide a retirement account can impact the amount of taxes that either party pays. Following legal guidelines may help you avoid paying burdensome withdrawal taxes. Be sure to carefully prepare division documents while taking into account tax consequences that may result from each course of action.

Retirement accounts may be some of the largest assets in a divorce estate. When you understand how division works, you can carefully prepare an order that protects your interests. An attorney may assist you with pursuing a fair judgment of divorce and preparation of documents.


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