Are Retirement Accounts Considered Joint Property In A Divorce?

Going through a divorce is an emotionally draining process. Nobody ever wants to think that their marriage will end one day, which is why most people are never prepared when it happens to them. After all, you are parting ways with the love of your life – someone you’ve shared your life moments with for a long time. In addition, this person may be the mother or father of your children.

When going through the divorce process in North Carolina, many people ask, “Will my ex-partner get a share of my retirement accounts?” During a divorce, it is usually easy to divide tangible assets like personal belongings and vehicles, because under North Carolina law, “marital” and “separate” property is determined by when the property was purchased. 

However, retirement accounts are quite complicated as they can be part marital and part separate, depending on the type of account and how long the account has been active.

How Retirement Benefits Are Divided

Under North Carolina divorce law, pension or retirement benefits, vested or non-vested, obtained during the marriage are part of marital property. They are, therefore, subject to equal distribution during a divorce. North Carolina family law divides the amount of time a spouse was employed while married by the length of employment to get the pension amount subject to division.

Putting it simply, if the husband and wife in question were married for five years, and the husband worked for the same company for those five years, and his pension vests after 20 years, then a quarter (5/20 years) of the pension will be considered marital property. 

Under normal circumstances, spouses are not entitled to more than 50% of the marital portion of their spouse’s pension. However, North Carolina law has several exemptions to this.

A spouse may receive more than 50% of the marital portion of their spouse’s retirement benefits if:

• Other marital assets cannot be equitably distributed.
• The parties do not want to divide assets associated with a business.
• The court determines that an unequal distribution is equitable.

Courts use a Qualified Domestic Relations Order (QDRO) to split retirement and pension accounts. A QDRO is ideal for individuals who want to divide their retirement plan because it is tax-free. The court issues a QRDO order to instruct a plan administrator to deduct the stated amount from one spouse’s retirement or pension account, and place it into an account or IRA for the other spouse.

An alternative to getting the QRDO is to pay a lump sum to the spouse entitled to receive a part of the retirement account. A case in point, if the spouse is entitled to $15,000 of the retirement account, the husband can choose to pay the wife this amount or give her an equally valuable asset.

When Is A Retirement Account Not Subject To A Distribution In A Divorce?

For an account to be excluded from distribution during a divorce, it must have been opened before the marriage and must have zero contributions made to it from the date of marriage through the date the divorce was filed.

A good example is when you have a rollover 401(k) or IRA established by a previous employer before you married your spouse. Neither you nor your partner may have received any benefits from your former employer. In this case, the retirement account is considered separate property.

Most brokerage houses do not keep account statements for more than ten years. It is essential to preserve all the important documentation for such accounts until the date of filing for divorce to prove their worth. You should present these documents to your legal representative handling your divorce.

When Is A Retirement Account Subject To Distribution During A Divorce?

Under North Carolina divorce law, all pension or retirement benefits acquired during marriage fall under marital property, hence subject to distribution during divorce. These include both vested and non-vested benefits. A vested benefit is one in which the employee has already completed the specified number of years and has started receiving the benefits.

When Is A Retirement Account Subject To Partial Distribution?

The following are conditions under which a pension or a retirement account can be subject to partial distribution:

• The account was established before marriage, but some contributions were made to it during the marriage.
• The account has had benefits vest during the marriage. While you will keep 100% of your retirement account benefits received before you got married, the money deposited by your employer during your marriage, and any earnings on those funds will normally be distributed equally.

Factors Considered When Dividing Property

Under North Carolina law, the court will consider the following factors when distributing marital property:

• The age of the spouses
• The health condition of the spouses
• The total income, assets, and debts of the spouses
• How long the marriage lasted
• The liquidity of the marital property
• The contributions made by each spouse to the marital property

Marital Settlement Agreements

Divorce can be a dreadful experience, especially if both you and your spouse cannot seem to see eye-to-eye about anything. North Carolina courts advise divorcing couples to work together through the process. In North Carolina, mediation is mandatory before taking a property distribution matter to court.

If you and your ex-partner decide to establish how the marital property will be divided, you can put this in writing and give a copy of your agreement to the judge. The court will then approve your agreement, provided it is fair to both of you.

Our North Carolina Divorce Attorneys Can Help

It’s critical to know your rights around any pensions or retirement accounts if you’re considering or going through a divorce. While divorces can be tumultuous experiences, it is never too early to start educating yourself. Even if you’re very early in the process, it can be helpful to consult with an experienced divorce attorney to get the best possible outcome.

The team at Schulz Stephenson Law is here and ready to help. To schedule a consultation, call us today at 252-728-7300 or fill out our online contact form today!