What Happens To My 401K Retirement Plan in a Divorce?
When it comes to dividing up assets from a Michigan divorce, you may think the equity of your shared house or maybe even your savings account will be your largest assets of value. In truth, this actually almost always ends up being a couple’s 401(k) or other retirement plans. Even if a 401(k) was started prior to a marriage, any amount that was vested in it during marriage is considered joint marital property, and your soon-to-be ex-spouse will likely get a share.
Dividing 401(k) Benefits
Regardless of whose name is on a 401(k), any amount put in during the marriage is considered marital property. If the account was started before marriage, then the courts will complete a complex equation to determine how much is considered marital property and how much you will retain as separate property. However, the account will need to be split in most cases, and Michigan does it in one of two ways.
When retirement accounts are divided, they are either done in an offset division or a deferred division. An offset division is often the preferable option for couples that simply want to have the split done during the divorce and move on with their lives. Offset division basically means the 401(k) holder offers up something of equal value to their ex-spouse in order to not split their retirement account. However, if nothing of enough value exists in the estate, this only leaves deferred division.
In a deferred division of a 401(k) or other retirement plans, the non-employee spouse will need to get a Qualified Domestic Relations Order (QDRO) which dictates specifically to the plan administrator that there is a non-employee ex-spouse that will need to receive a payment and what that payment will be. This order basically states what share of a 401(k) they will have an interest in and that they will receive benefits when they reach retirement age to collect. The benefits can be paid in a shared payment, which means they are divided as they are made, or as a separate payment into the non-employee spouse’s separate retirement account without penalty.
There is a third way in which your 401(k) may remain untouched, and that is if your spouse also has a 401(k) of equal or comparable value. In these cases, instead of splitting two 401(k) accounts, it can be agreed upon that each party simply retains their own. However, this is a somewhat rare circumstance. More often is the case that one spouse’s 401(k) is much larger, in which case typically a determined portion is taken from the larger 401(k) and put in the smaller 401(k).
Getting Your Fair and Equitable Share
Dividing a 401(k) and other retirement plans are often the most complicated area of divorce, especially if you are one of many couples going through a “grey” divorce where they separate in their older years. However, these plans are something you will come to rely on in your older years and you want to make sure you get what is fair to you.
In some cases, what is “equal” in a Michigan divorce is not always truly equal, but it is fair. There are a number of aspects in marriage that can affect the division of assets accrued during a marriage, including the retirement accounts. These aspects include length of marriage, employment, the age and health of both parties, and their unique financial circumstances. This is why it is so crucial to get a good lawyer when going through what will be a complicated divorce. By making that investment, your lawyer can help you navigate the system to assure you retain assets that are fair from your dissolving marriage.