WE ARE GETTING A DIVORCE – HOW DO I GET MY FAIR SHARE OF MY SPOUSE’S RETIREMENT BENEFITS?

Barbara Morgenstern One of the largest assets in many marriages is the retirement plan of the spouse who was employed outside of the home during the marriage.  Each spouse is presumptively entitled to one-half the net marital estate under North Carolina equitable distribution law, which typically involves distributing a portion of the retirement plan to the non-employee spouse.

Retirement plans are divided by a court order which instructs the Plan Administrator to transfer a portion of the retirement plan to the non-employee spouse.  An order is required because the retirement plan is listed under the social security number of the employee spouse, who would be taxed on the funds if they are withdrawn.  The tax code allows a judge to order the Plan Administrator to transfer the non-employee spouse’s share to a retirement plan established by that spouse in a tax-free manner, and the non-employee spouse pays taxes when he or she withdraws the funds at retirement age.

If the retirement plan is qualified under the ERISA statutes then the order is called a Qualified Domestic Relations Orders.  Typical qualified plans are 401(k) plans, 403(b) plans or pension plans.  Typical non-qualified plans are things like individual retirement accounts, deferred compensation plans, military retirement plans, government pensions, or unfunded plans established for highly compensated executives.  Those plans are divided by an order known as a domestic relations order.  Individual retirement accounts cannot be divided until after the divorce, but qualified plans can be divided after the parties separate.

How do I get my share of these plans if I have been unemployed outside the home during the marriage?  If the plan is a qualified plan, the funds can be rolled pursuant to a qualified domestic relations order into an individual retirement account established by the non-employee spouse.  If the plan is a non-qualified plan, the funds may also be rolled into an individual retirement account pursuant to a domestic relations order.

If I have been employed during the marriage and have a 403(b) plan and my spouse has a SIMPLE IRA through his employment, can those funds be rolled into my retirement account?  The answer is “no;” non-qualified funds cannot be rolled into a qualified plan.

If both of us have 401(k) plans, can my share of my spouse’s retirement be rolled into my 401(k) plan so I do not have to establish an individual retirement plan?  The answer is “yes.”  Qualified funds can be transferred to another qualified plan.

Finally, I need some cash to make a down payment on a home.  Can I withdraw some of the funds in my wife’s 401(k) plan to use the money now?  The answer is “yes.”  As the non-employee spouse, you have the right to take a one-time distribution from the 401(k) plan within 60 days of the entry of the qualified domestic relations order and avoid paying the 10% penalty for early withdrawal.  You will be taxed, however, at your effective rate on any money you withdraw.

       The four certified family law specialists at Black, Slaughter & Black, P.A. are available to assist you with your equitable distribution case and help you get your fair share of the marital estate, including the drafting of orders to divide the retirement accounts acquired during the marriage.