High Asset Divorce Needs Skilled Legal Counsel

Dividing retirement assets is more complicated than other assets

On Behalf of | Apr 18, 2022 | Divorce |

There are many aspects of a couple’s married life that needs to be divided during a divorce in Alabama. They need to separate their residences and may need to separate their parental responsibilities if they have minor children. They also need to divide all their marital assets. These generally include money in bank accounts, investment accounts, vehicles, collectables, retirement accounts, household goods and other types of assets that were acquired by either spouse during the marriage.

Different assets have different characteristics though and how an asset is divided depends on the type of asset. Couples cannot cut a house or vehicle in half and each take one-half of the house or vehicle. Couples will need to determine the values of these types of assets and then determine how they will split the equity or whether they will simply sell them and split the proceeds.

Dividing assets such as bank accounts can be fairly straightforward, since these are typically liquid accounts and people can add and remove money as they please. It is fairly easy to simply take money out of the account and give the appropriate amounts to each spouse. Dividing other financial accounts can be more difficult though.

Special orders are needed to divide retirement accounts

One of the assets that can become more complicated to divide is retirement accounts. Pensions, 401(k)s and other types of retirement accounts are governed by federal laws known as the Employee Retirement Income Security Act of 1974. These laws govern accounts which allow people to put in pre-tax income to provide for themselves later during retirement.

These laws also make it more complicated to divide them. Typically, there are penalties assessed to people who take distributions from these accounts before they retire. However, if the distributions are being made pursuant to a divorce, the participant in the plan can transfer funds from the account to their spouse without incurring the penalties. The spouses can then roll those funds into their own retirement account and avoid the penalties as well.

To do this though the couple needs a separate order called a Qualified Domestic Relations Order which orders the plan administrator to distribute funds in accordance with the divorce decree without penalizing the plan participant. Basically, the spouses receiving the funds are stepping in as if they were a plan participant for the portion they are receiving.

Retirement accounts can represent some of the most valuable assets couples own, which makes them important during asset division in a divorce in Alabama However, they are also one of the more complicated assets to divide. Experienced attorneys understand the process though and could be a helpful resource.