Dividing Retirement Accounts in Divorce

Divorce is complicated because it touches on so many different things. Of all the things that come immediately to mind – like child custody, spousal support, and the marital residence – retirement is one of the biggest and most important elements of your divorce.
Men often like to say that their retirement is their own because they earned it. Sometimes, they even work really hard to spread misinformation – like that their spouse isn’t entitled to any portion of their retirement until they are married at least ten years. (This is especially prevalent in the military, but I’ve heard it from civilians, too!)

When it comes to divorce, though, the answer is simple. Regardless of whether you’ve been married ten days, ten years, or a hundred years, you’re entitled to half of what was earned during the marriage. That doesn’t mean a straight up 50% share, though – remember, I said half of what was earned during the marriage. If you were only married for a single day, then 50% of what was earned in the course of that day isn’t very much. In that situation, you may just waive your interest – because we’re talking pennies. In almost any other case though, even if the marriage was of a relatively short duration, it may be worth taking your marital share – especially if you have no other savings of your own.

He says he won’t give me any of his retirement.

That’s so typical it’s not even funny. Though there are lots of areas of law that we fight over in divorce – like child custody and spousal support – retirement isn’t really one of those areas. You’ll get your marital share from the judge.

Since other family law attorneys know that, too, they usually encourage their clients not to fight over it. What’s the point? Sure, you can dig in your heels and refuse to agree to give your spouse their marital share, but, ultimately, the judge will award it anyway. So why spend more to have the outcome be the same regardless?

That’s not to say it’s easy. Men (not to be stereotypical) are notoriously insanely protective over their retirement accounts. I’ve had cases where the husbands refused to agree to divide the retirement accounts for way too long, but, ultimately, it came out just fine in the end. Spoiler alert: we didn’t go to trial over that issue.

He may be a pain about it, but there’s not a lot of negotiation here – unless you want to use your interest in his retirement as a bargaining chip to get something else (like, for example, a portion of his equity in the marital residence). I don’t care what he says – you’re entitled to a portion of his retirement as your marital share, provided that it was earned during the marriage.

I don’t want to give him any of my retirement.

If you’re the one with the retirement, the same applies. It doesn’t really matter whether it’s his retirement or your retirement, if it was earned during the marriage, its divisible during the divorce. You can fight him on that, but, unless he voluntarily agrees to waive his interest in it, there’s not much sense in continuing negotiations.

Though I know there are perfectly legitimate reasons to go to court, retirement just isn’t one of them. If you’re going to spend money on attorney’s fees, you should do some thinking about your goals and plan strategically for how to meet them. No matter how much money you throw at this issue, the court will divide the marital share – so it’s probably not a great investment.

It may be worthwhile to at least try to negotiate an agreement where he waives his interest in your retirement, but you should be aware that a proposed agreement is always just that: a proposal. If he accepts, great. But if he doesn’t? Probably worth your time and energy to invest in fighting over this.

What if our retirement accounts are virtually equal in value?

If the retirement accounts are equal, there’s no harm in each spouse keeping their own. And we often don’t need to split each account; we can just equalize the values, which may mean we only have to divide one account. Because there are often fees involved, it’s best/easiest/cheapest to minimize the number of transfers to accomplish the same goal.

How are retirement accounts actually divided in divorce?

I get lots of questions about how division of retirement accounts is actually achieved. The answer is pretty simple!

Depending on the type of account, we prepare specific documents at the time of the final divorce. They’re entered by the court and, after the divorce is finalized, they’re sent on to the relevant financial institutions. With a 401(k) (or any other tax deferred retirement account), for example, we prepare a QDRO (which stands for a qualified domestic relations order). With a Thrift Savings Plan, all it takes is a TSP order. For an IRA or other account where taxes are not deferred, we don’t even need a QDRO to effectuate the transfer! Then, we send the documents – which are now court orders – to the plan administrators or whoever needs to actually transfer the money.

I don’t know how it all happens on their end; it must be magic! But, as far as we’re concerned, getting those court orders in place is enough to get the money transferred from his account into one of your own, or vice versa.

Can’t I just get the cash or transfer the money into an account myself?

Sure. At least, probably. The rules about withdrawing funds are unique to each type of account, so you’ll want to check with the plan administrator to know for sure. But you may be subject to all sorts of tax consequences, so that’s something to definitely be aware of and ask about.

You can take a withdrawal and transfer it yourself, but the tax consequences will likely still apply. The QDRO is a way to avoid potential tax consequences.

What if we have an agreement giving me my share of the retirement, and he removes it from the account?

Whether you have an agreement or a court order, you’re entitled to whatever the agreement or court order says. If he owes you a portion of the retirement, he has to obey. Sure, he could spend it – or take a loan or whatever – but if you took him to court over it, he’d have to make good on the agreement or court order. If he doesn’t have the money in his retirement account anymore, he’d have to satisfy the order from some other asset.

In real life? I’m not worried about this. Before an agreement or court order is signed it’s a little more risky, but, still, if he’s withdrawing the funds for a non-marital purpose, we’d have a pretty good argument that you shouldn’t be impacted by this behavior. If this is something that has happened to you (or you’re scared it could happen), it’s a good idea to talk to an attorney as early as possible and come up with a plan for how to combat it.

If you don’t have an agreement or a court order yet and you’re worried he may liquidate assets, you may want to file for divorce and schedule a pendente lite hearing (Latin for “while the litigation is pending”) where you can ask the judge that he be prohibited from wasting assets.

For more information or to schedule an appointment with one of our licensed and experienced Virginia divorce attorneys, give our office a call at 757-425-5200.