When a marriage is ending, the division of assets acquired during the marriage is subject to equitable distribution. This includes most types of retirement accounts and retirement investments. If these assets are not carefully protected, your rights to them may be negatively affected.
Protecting your retirement rights is crucial to your financial health moving forward after your divorce. With the help of an experienced Missouri divorce lawyer, you can feel confident that your rights and financial freedoms are protected.
Division of Retirement
During the divorce process, the judge overseeing your case will oversee the equitable distribution of all (or nearly all) marital assets. Equitable does not always mean equal, and the court will seek to create a division of assets that is "fair."
Retirement assets include:
- 401(k) accounts;
- 403(b) accounts;
- IRAs, simplified employee pension IRAs, and Roth IRAs;
- employee stock options; and
- life insurance accounts.
Qualified Domestic Relations Orders
A qualified domestic relations order (QDRO) contains directions from a court to the administrator of your retirement plans for how benefits will be divided between ex-spouses. QDROs can be used for a variety of different kinds of retirement accounts.
Different methods are used to distribute assets through QDROs:
- Qualified Joint and Survivor Annuity: The spouse who does not hold the pension is granted survivorship rights in it.
- Shared Interest: The spouse who holds the pension and the spouse who does not receive benefits at the same time.
- Separate Interest: The spouse who does not hold the pension receives benefits when he or she chooses.
What must be included in the QDRO?
QDROs can be drafted as part of the final divorce trial entry, or as part of a divorce settlement. Certain requirements must be included, and it must be carefully written by an experienced Missouri divorce attorney.
A QDRO must include:
- the name of both spouses,
- the spouses' mailing addresses,
- the percentages or flat amounts each spouse will receive,
- the time period the QDRO covers, and
- what pension plan it applies to.
A pension is a type of retirement plan that provides monthly income during your retirement. Pensions have become less commonly offered by employers over the years. Notably, the exception to this are public pensions, which the Missouri government provides to many employees.
Pensions are typically calculated by combining:
- the years of employment with the employer,
- the employee's age, and
- the compensation earned by the employee over the years, or your final compensation amount at retirement.
Most types of pensions are divisible during a divorce for any amount that was earned during the marriage.
If a spouse has a retirement plan through the Public School Retirement System, that spouse earned retirement through it rather than through credits toward social security benefits. In 2003, the Missouri Supreme Court ruled that benefits accumulated through that retirement system are not divisible in divorce.
401(k)s and 403(b)s
A 401(k) is a retirement savings plan sponsored by your employer. A portion of each paycheck is taken out before taxes and placed into the account to build up over the years. This amount is invested across multiple stocks and bonds, which is meant to eventually provide a large amount of savings to live off of during retirement.
A 403(b) plan is a type of retirement plan for specific employees of public schools, tax-exempt organizations, and certain ministers. 403(b) plans invest in either annuities or mutual funds and are commonly referred to as "tax-sheltered annuity plans."
401(k)s and 403(b)s are divisible during the divorce process for any amount that was earned during the time of the marriage. They are considered marital assets. In many cases, spouses agree to buy out the value of their portion of a retirement account rather than withdraw from the account itself. Both types of accounts have early withdrawal penalties, so a negotiated agreement to prevent this is in both parties' best interests.
IRAs, SEP IRAs, and ROTH IRAs
A traditional individual retirement account (IRA) is the most common kind of IRA. An IRA is an account set up with a financial institution, such as a bank or investment company, to allow a person to contribute money towards the account for retirement with tax-free growth on a tax-deferred basis. When you begin to withdraw from the IRA for retirement, the income is taxable at that point.
In a simplified employee pension IRA (SEP IRA), self-employed persons contribute to retirement plans for themselves or their employees. This type of IRA allows for more flexibility with contributions, but income from a SEP IRA is taxable upon distribution.
A ROTH IRA is different from the other two because taxes on contributions are paid up front. However, as long as certain conditions are met, distributions from a ROTH IRA are tax-free during retirement. This also allows people to take distributions at any time, tax-free, and without any penalties.
Funds in an IRA of any type can be transferred from one spouse to another without tax consequences. It must be done in a certain way in order to avoid tax penalties, but an experienced attorney can ensure that this process is followed correctly.
Employee Stock Options
An employee stock option is granted to certain employees of a company to buy shares at a predetermined price as part of the employee's benefits package. These are considered "investments" which may be subject to division during a Missouri divorce, so long as the stock option was acquired during the marriage.
Valuation of the stock option must be done during the divorce process to determine how much each spouse is entitled to.
When married couples have life insurance, they typically name each other as the beneficiary of the policy. Whether the divorce automatically cancels your ex-spouse's designation as the beneficiary of the life insurance amount can be tricky to determine, and it is affected both by Missouri law and the language of your life insurance plan.
During your divorce, any life insurance policies should be brought to the attention of your divorce attorney. Your attorney can analyze Missouri law and your unique policy to determine the appropriate steps that will protect your financial assets.
Consult a Missouri Divorce Attorney
Division of retirement assets is important to the parties, all of whom want to protect their financial interests. Retirement account division can be complex, but with the help of an experienced Missouri divorce attorney like Joshua Wilson, you can be assured you are following the law and protecting your finances.
Contact the Joshua Wilson Law Firm today at (816) 331-9968 for a consultation.