In a Divorce What Will Happen to 401 K Plans and Retirement Funds?

Any form of savings/pension, retirement, 401K or benefits programs that are intended for retirement, are according to Florida law to be potential marital assets. This means that they can be a part of the 50/50 division given by Florida Statutes if they were accrued between the marriage date and the divorce petition filing. This also means that all monies accrued prior to the marriage date or after the date of filing are not considered marital assets and are therefore not subject to the 50/50 division. The 50/50 division is the default division that is applied should you bring your case before a judge.

Many people do not like the idea of having their pension divided up and will often try to negotiate around the 50/50 division by devising an alternative settlement, either through a successful mediation or in advance of filing. The Court will not force the 50/50 division when the parties agree to another way of sharing the property. But, keep in mind that just having the retirement in "your" favor will probably not be agreed on by your spouse, especially in cases where no other marital assets to divide. For example, if you have a nest egg of $500,000 and that was the only thing there is of value.

The chances of your spouse agreeing to let you keep that whole amount for yourself are very low, and the Court will not expect them to agree either. In other words, you should be fair in all expectations, which means that this area can be very emotional and sensitive. It is especially sensitive for professionals who risk their lives, like fire, police and first responders because most people just do not understand or know what to expect with the public policy of the 50/50 default setting. Be Careful! Many cases are subjected to wasteful litigation due to one spouse who would not accept this position of the law.

To put it as simple as possible as to WHY these plans are divisible includes the following. As you were busy at your job working and putting some of your pay toward retirement, you were either doing so 1 – with the help of your spouse who was picking up the slack in other areas, either in the home or financially (meaning you did not have to hire a nanny or use daycare because your spouse stayed at home, which allowed you to save, or because they used their own income for household expenses). Or, 2 – the asset was accrued as a joint venture to benefit the marriage and if not for the divorce, would have.

The other spouse ended up having no retirement planned of their own, or they did not meet their goal due to expecting a joint benefit. Another issue that is often questioned is how the plans are divided, which will usually depend on the Plan Administrator. Sometimes benefits are transferred in a lump sum, and then when the marital portion is identified, one-half can be transferred right away when the final judgment is decreed. Another more common way with pensions is when the asset does not "payout" until the person is entitled to the benefit. One example is when a military retirement will not vest until service time is ended, which at that point each spouse will get a stipend check every month.

Both steps require another step of a QDRO or Qualified Domestic Relations Order. Just the Final Judgment is not enough to self-execute this, and sometimes QDROs have to be approved by the Plan Administrator before payments are started. There are some older cases that are having issues with the QDRO orders not being sufficient due mainly to math formulas that were not specified or some other technical issue. In many cases the fix is as simple as having the QDRO or Final Judgment amended to take care of the relevant issues.

If you are a spouse who is entitled or a beneficiary spouse and due to a divorce is seeking a lump sum payout, keep in mind that the QDRO transfers funds directly from plan to plan and there will be tax penalties and fees associated to the transaction. In addition, if an agreement is in lieu of QDRO, the spouse who owns the plan who takes a withdrawal and pays directly, the other spouse must consider who will be responsible for paying the penalties, and who will be responsible for taxes associated with the transaction.

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