Divorce and How it Affects 401(K) Plans and Retirement Funds

401K and retirement, along with any other type of savings benefit or pension program that us meant for retirement, are all considered to potentially be marital assets, according to Florida law. What this means is that they are able to be considered as a part of the 50/50 division of assets that Florida statutes allow. This is only to the amount that was earned from the date of the wedding until the date that the petition for dissolution has been filed. This means that anything that was earned in those accounts either before or after the date that the petition for dissolution was filed is non-marital and as such, it is not able to be part of that distribution.

All of this is assuming that the default division will be applied if you take your case to court. Many people are resistant to having their pension divided in this way and will often try to negotiate around this division by trying to agree on a different settlement before filing or through a mediation. If the partners are able to agree on an alternate settlement, the court will not impose the standard 50/50 division.

Keep in mind that if there is a dearth of assets that can be negotiated with, getting the retirement division taken out is not very likely to be agreed on by your soon to be former spouse. Just as an example, let's say that all of your $300,000 retirement funds was accrued during the marriage. This is all that you have that is valuable. In cases such as this, your partner will not be likely to agree that it should all go to you and the court will agree with them. This means that you will need to be fair in what your expectations are.

The actual distribution and value of the retirements can be a sticky point or a topic that is emotional. Often, people don't want to understand or accept the policy that lies behind this default setting of the statute. You need to be careful here because many cases go through intense litigation because the parties cannot agree to accept this division that is given by law.

At its most basic level, the idea behind this division can be explained as:

When you were working and saving for retirement, you were doing this either:

1. With the help of your spouse by picking up slack either in the home by action – meaning you didn't need to hire a daycare or nanny due to the spouse being home, which allowed you to be able to save more – or financially, because of the fact that you were saving for retirement, they used their money to pay for living expenses and bills.

2. The retirement was saved with the express intent of being utilized for both you and your spouse and aside from getting a divorce, it would have been. Because of this, your spouse either fell short of their retirement goals or made no retirement plans of their own because they expected to share yours.

There is also an issue about how the plan will be divided and this will depend greatly on the Plan Administrators. Sometimes a part of these benefits are able to be transferred at once in a lump sum, which means that once the division has been agreed on, as soon as the final judgement has been given the monies can be transferred immediately. More commonly though, the asset will not be available until the person who owns this asset is able to take advantage of it him (her) self. As an example, look at a military retiree. They will not collect on their pension until they have left service. They will then get a check each month and so will their former spouse.

Each of these methods also requires a Qualified Domestic Relations Order or QDRO. See by itself, the final judgement is not enough to allow for this to self-execute. Many times, the Plan Administrator will need to approve the QDRO before any sort of payments can be processed. Nowadays, we are seeing older cases where even the QDRO orders are not sufficient. This is because of technicalities or math formulas being off. This is easily fixed though by getting either the QDRO or the final judgement amended with the correct information.

If you happen to be a beneficiary spouse or and entitled spouse because of a divorce and you are looking to get a lump sum payout you will need to remember that unless the funds are transferred from directly from one plan to the other by the QDRO, there will be fees and tax penalties that will go along with the transaction. Additionally, if there is an agreement instead of the QDRO where the owner of the plan makes a withdrawal and then pays it directly to the other spouse, there needs to be a prior agreement made as to which one will be responsible for the taxes that will be incurred by this transaction.

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