One of the last things you may be thinking about during a divorce is your retirement and investment accounts. These accounts, however, are a critical part of any divorce proceeding.
Various types of retirement and investment accounts can be allocated during a Michigan divorce. Some of these are:
- IRA and Roth IRA plans.
- 401(k) and 403(b) plans.
- Pensions, including military pensions.
- Stocks (vested and unvested).
In Michigan, all property and assets acquired during the marriage are considered marital property. This is true even if only one party has contributed to the account. When a divorce is initiated, the court will then divide the marital assets equitably between the parties.
Here are some things to consider about retirement and investments accounts when getting a divorce in Michigan.
A retirement account – and investments in general – will be allocated like any other asset in a divorce. In Michigan, this means the account will be “equitably” distributed.
Keep in mind, however, that the term “equitable” does not necessarily mean a 50-50 split. Rather, the court will distribute the funds between the parties as it deems fair and equitable. In making this decision, the court will consider such things as the work history and support history of the parties.
Retirement and investment accounts are usually separated equitably. The exception is when one party did not contribute to the account in any way, either monetarily or by supporting the monetary earnings of the other spouse.
While retirement accounts are sometimes divided 50-50, the court often splits them by considering other assets that are being distributed in the divorce – like a house, other real property, motor vehicles, and so forth.
QDROs And Michigan Divorces
“QDRO” stands for Qualified Domestic Relations Order. A QDRO is a court order that addresses the divorcing parties’ property rights, alimony, and/or child support.
A QDRO is especially beneficial when it comes to retirement accounts. Basically, the order splits the value of retirement and investment accounts to avoid tax consequences. Most retirement accounts do not permit the beneficiary to make a withdrawal without incurring a 10 percent penalty until age 59 ½. A QDRO, however, allows funds to be withdrawn from a retirement account for purposes of property division without incurring any penalties. Taxes will still need to ultimately be paid on the withdrawn funds.
If the retirement funds were invested before getting married, the principal amount may be considered the entire property of the party who initially made the investment. Therefore, if the court finds these funds are non-marital property, then one party can keep 100 percent of them.
Take note: Any net gains or interest accrued during the marriage can be considered marital property to be divided in the QDRO.
If you have questions about retirement accounts or QDROs in a divorce, contact the experienced Michigan family law attorneys at Thacker Sleight.